What best describes a hedged equity strategy?

A hedged equity strategy is characterized by its long or short bias, which allows for flexibility in managing risk and return. This approach involves taking long positions in equities while simultaneously implementing short positions, either in the same equities or in related securities, to reduce potential losses from adverse market movements.

The essence of a hedged equity strategy is that it is not necessarily neutral; it allows for significant tactical decisions by the manager regarding the proportion of long and short positions based on market conditions and the manager's outlook. This dynamic nature helps to capitalize on market opportunities while attempting to mitigate downside risk.

In contrast, a strategy that remains constantly neutral focuses more on balancing risks without taking directional bets, which is not the essence of a hedged equity approach. Similarly, a strategy that only emphasizes long equity positions does not encompass the breadth of hedging that can be achieved through short positions. Lastly, while derivatives can be a part of a hedged equity strategy, it does not exclusively rely on them; thus, a definition focused solely on derivative instruments is too narrow. Therefore, the choice that embodies the complexity and adaptability of a hedged equity strategy is one that acknowledges both long and short positions without defining it as neutral.