Long/Short Equity Strategies in Australia: 2025 Investor Guide

Australian investors are no strangers to volatility, especially as global and domestic markets continue to react to shifting interest rates, regulatory reforms, and rapid sectoral changes. In 2025, long/short equity strategies are drawing increased attention from both retail and institutional investors seeking to manage risk and pursue returns, regardless of whether the ASX is climbing or correcting. But what exactly is long/short equity, and how are Australians using it to their advantage this year?

What is Long/Short Equity?

Long/short equity is an active investment approach where fund managers or sophisticated investors buy (‘go long’) shares they believe will rise in value, and simultaneously sell (‘go short’) shares they expect to fall. The aim: generate positive returns whether the overall market is bullish or bearish. This is distinct from a traditional ‘long-only’ strategy, which profits only if share prices go up.

In practical terms, an Australian long/short equity fund might:

• Go long on a high-growth renewable energy stock expected to benefit from government incentives in 2025

• Go short on a legacy coal producer facing headwinds from new emissions regulations

By balancing positions, investors can hedge against market swings and potentially reduce portfolio volatility.

2025 Trends: Why Long/Short is in Focus

This year, several factors are fuelling interest in long/short equity strategies across Australia:

• ASX volatility: Ongoing global economic uncertainty and the RBA’s recent rate adjustments have made single-direction bets riskier.

• Sector rotation: Rapid shifts, such as the tech sector’s rebound and energy’s mixed outlook, have created clear winners and losers.

• Regulatory shifts: The 2025 expansion of short-selling transparency rules and new ASIC guidelines have made the mechanics of shorting more accessible and better regulated for retail investors.

• ESG integration: Environmental, social, and governance (ESG) screens are leading some funds to short companies at risk from decarbonisation policies, while going long on those positioned for the green transition.

Major Australian fund managers, such as Platinum Asset Management and Perpetual, have expanded their long/short offerings, while several ETFs now provide long/short exposure to ASX indices for everyday investors.

How Investors Use Long/Short Equity in Australia

Long/short equity isn’t just for hedge funds. With new products and tighter regulation, it’s increasingly available to sophisticated retail investors, SMSFs, and even some managed accounts. Here’s how Australians are putting it to use in 2025:

• Diversification: By blending long and short positions, investors can pursue returns even when market direction is unclear, and better manage downside risk.

• Thematic investing: Some are taking sector-specific views—longing green hydrogen startups, shorting fossil fuel laggards, or betting on tech disruptors versus incumbents.

• Active risk management: Long/short strategies help portfolios weather sharp corrections, as seen in the choppy ASX moves following global commodity price swings this year.

• Access via ETFs and Managed Funds: The rise of ASX-listed long/short ETFs (e.g., Betashares Australian Equities Strong Bear Hedge Fund) and multi-strategy managed funds means investors can now access these strategies without advanced trading setups or derivatives knowledge.

However, these strategies are complex and come with unique risks—especially in shorting, where potential losses can exceed the initial investment if a stock rallies unexpectedly. It’s crucial to review product disclosure statements and understand the fund’s approach before jumping in.

Case Study: Navigating the 2025 ASX Energy Shake-up

Consider an Australian fund manager in early 2025, as the government tightens emissions caps and global energy prices fluctuate. The fund goes long on a listed renewables company with strong project pipelines and short on a coal miner facing regulatory headwinds and declining demand. Over the first half of the year, renewables stocks rise on policy optimism, while coal shares lag. The long/short approach captures gains from both sides, outperforming many pure long-only funds that were hit by the coal sector’s slump.

This illustrates how long/short equity can provide both performance and protection in an evolving Australian market landscape.

Is Long/Short Equity Right for You?

Long/short equity isn’t a magic bullet, but it’s a powerful tool for investors looking to navigate uncertainty, hedge risk, and seek opportunities across the ASX. With new 2025 regulations and products making it more accessible, Australians have more ways than ever to benefit from sophisticated investment strategies—if they do their homework and understand the trade-offs.