Long-short funds, also called market neutral funds, take both bearish and bullish positions, hoping to profit from "dispersion," or variance in the performance of different securities.
"As (central banks) start withdrawing QE (quantitative easing), markets perform with more volatility, which means less predictability," Khanna said. Pictet's "balanced" portfolio has increased its recommended allocation to long-short funds to 3 percent.
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"Some segments will do very well and others will do badly, based on their earnings capacity and their business models," he said. "The long-short equity managers will do well."
The strategy has stalled out the past couple years. Hedge Fund Research's Equity Market Neutral Index rose 6.5 percent last year, sharply underperforming the S&P 500's over 30 percent rise for 2013. HFR's index gained 3.0 percent in 2012 after falling 2.1 percent in 2011. So far this year, the index is up 1.0 percent.
Allocations to the funds appear to be increasing. Around $53.7 billion has flowed into long-short equity funds so far this year, according to data from EurekaHedge, compared with $81.3 billion last year and outflows the previous two years.
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To be sure, one of the reasons the segment sees strong fund flows is because the number of funds available is one of the most sizable in the hedge fund space, noted Kemmy Koh, managing director at Paamco, a fund-of-hedge-fund manager with around $9.4 billion under management.