Retail investors should take advantage of short-selling strategies as a way to improve the efficiency and returns of their investment portfolios, according to Perpetual.
During volatile markets, short-selling can be a useful tool that allows investors to reduce risk by cutting down their allocation to an asset class, Perpetual senior portfolio manager Vasant Khilnani said.
"Short-selling a stock is a valid investment strategy that can have a dramatic impact on the efficiency and returns of a portfolio," he said.
Perpetual's analysis has shown that modest exposure to short-selling of 5 per cent of a portfolio could deliver dramatic improvements in returns.
Furthermore, a 20 per cent exposure to short-selling delivered a significant increase in efficiency and a 20 per cent increase in returns, Khilnani said.
"Many investors have been scared of short-selling strategies because they are inherently riskier than long positions," he said.
However, these risks can be managed by spreading a short portfolio over a number of stocks and implementing stringent stop-loss mechanisms both at the stock and portfolio level, Khilnani said.
