Shorting stocks, particularly in small-capitalization technology companies, provides flexibility, portfolio manager Chris Retzler told CNBC Thursday.
"We like to invest in good management teams. So when we find a team that may not be as strong, that would be a candidate for a short position," said Retzler, manager of the Needham Small Cap Growth Fund.
He also uses shorting to "hedge against longer positions, because we are tax advantaged and try to get the long-term capital gains. We also use ETFs against a market hedge when we find that there's a real volatile period and we would like to take some of the market risk out."
The small-cap fund is currently holding 10 percent of its assets in cash, but could go higher if necessary, he said. The fund had a one-year decline of 13 percent, but is up nearly 20 percent over the past three years.
Retzler said investors are looking for "great opportunities to invest" after sitting on the sidelines for some time. Companies, however, are feeling more uncertain about the future.
"I think the wild card is what happens in Europe," he said. "For the most part the feeling’s pretty good [at companies he's talked to] and we’ll have to see."
Valuations have been attractive for small-cap tech companies and the small-cap fund's largest holdings are in Brocade Communications , Emulex, Formfactor, Seagate Technology and Entropic Communications .
CNBC Data Pages:
Disclosure information was not available for Chris Retzler or his company.