What characteristic do hedged equity strategies focus on?

Hedged equity strategies primarily focus on identifying overvalued and undervalued equity securities. The main objective of these strategies is to reduce risks associated with equity market investments while aiming to enhance total return through market-neutral or directional positions.

These strategies employ tactics such as short selling overvalued securities while going long on undervalued ones. By doing so, they seek to capitalize on the differences in valuation, which allows investors to potentially profit regardless of overall market direction. This focus on relative valuation distinguishes hedged equity strategies from other investment approaches that may prioritize direct market exposure or other asset classes.

The emphasis on overvalued and undervalued securities is what helps managers develop a disciplined approach to equity investment, relying on fundamental analysis to make informed decisions about which companies are mispriced. This contrasts significantly with index tracking, which aims to replicate market performance; real estate investments, which involve physical property; and private equity ventures, which typically focus on investing in privately held companies.