5 Long/Short Mutual Funds to Protect Against Market Volatility
It’s a Bull market! No, the Bear is upon us! Lately, no matter what financial channel you flip to, or the page on your favorite financial research web site (FYI, Zacks.com is a great place for research), you will see one talking head saying one thing while another talking head is saying the exact opposite about the future of the market.
Specifically, the bulls will say, the American economy is roaring back from the recession, and the stock market will continue to rise, while the bears will point to unrest in the world, and the market surpassing all-time highs to prove that the market is going to crash.
But who is right?
Wouldn’t it be great if you could invest in a vehicle that takes the best of each prediction? One that goes after growth stories, while protecting against any sudden downturn? Given the state of the world, and the conflicting future expectations regarding the economy, wouldn’t it make sense to protect against a potential downturn while still investing in growing equities?
That is where a Long/Short Mutual Fund comes into play.
This unique investment vehicle utilizes leverage, derivatives, and short positions in order to maximize total returns, no matter the market conditions. Essentially, the fund is attempting to gain the advantages of a hedge fund, but with lower fees, and no lockout periods.
Traditionally, the long/short fund will go long (buy) companies the fund manager expects to increase in value while, shorting securities of companies the manager expects to decline in price. The fund may also utilize ETF’s, futures, or index options to hedge out the market risk if the risk levels get too high for the manager.
Finding the Best Long/Short Mutual Funds
By utilizing the Zacks Mutual Fund Rank, we found 5 Long/Short Mutual funds that are relatively cheap to enter, are not front loaded, and have minimal fees while producing large positive gains. These funds are worth looking into during these times of uncertainty, and volatility.
5 Long/Short Mutual Funds to Consider
Rydex Europe 1.25x Strategy Fund (RYEUX) a Zacks Rank #1 (Strong Buy) seeks to provide investment results that correlate to the performance of the Dow Jones STOXX 50 index. The fund’s investment advisor attempts to consistently apply leverage to increase the fund’s exposure to 125% of its benchmark. The fund holds U.S. government securities or cash equivalents to collateralize these futures and options contracts. The fund may also enter into repurchase agreements. Dividends and capital gains are distributed annually. This fund was established in 2000, and is heavily weighted in foreign stocks and high yield bonds.
Past Performance: 1 year 29.04%, 3 year 7.91%, 5 year 9.96%.
GMG Defensive Beta Fund (MPDAX) a Zacks Rank #1 (Strong Buy) seeks to provide long-term capital appreciation. The fund’s manager seeks to achieve the fund’s investment objective by investing long or short across a broad spectrum of traditional and alternative asset classes of U.S. and foreign issuers using its proprietary “Alpha” and “Beta” strategies. This fund was established in 2009, and is well diversified across multiple sectors.
Specifically, the fund, according to the fund manager, “invests defensively while focusing on capital appreciation, seeks to mitigate portfolio volatility without hampering the potential for long-term investment returns, and blends academic research with modern investment techniques.”
Past Performance: 1 year 14.76%, 3 year 6.87%, 5 year N/A.
Schwab Hedged Equity Fund Select S (SWHEX) a Zacks Rank #1 (Strong Buy) seeks long-term capital appreciation with lower volatility than the overall market. To pursue its investment objective, the fund establishes long and short positions in equity securities issued by U.S. companies. The fund may purchase or sell short securities of companies of any size. The fund offers dividends and capital gains annually. Finally, the fund was initiated in 2002, and is well diversified with investments in over 10 different industry sectors.
Past Performance: 1 year 14.72%, 3 year 8.04%, 5 year 10.44%
Wasatch Long/Short Fund (FMLSX) a Zacks Rank #1 (Strong Buy) seeks long term capital growth by investing in long stocks believed to be undervalued by the market at large and selling short stocks believed to be overvalued by the market at large. The fund may purchase securities from any market sector and any company with a market capitalization of at least $100 million.
The fund was established in 2003, and is well diversified across many industry sectors.
Past Performance: 1 year 14.00%, 3 year 9.45%, 5 year 11.35%
Astor Long/Short ETF Fund (ASTZX) a Zacks Rank #1 (Strong Buy) seeks total return through a combination of capital appreciation and income. The fund invests in exchange traded funds, in addition to index-based mutual funds that primarily invest in equity securities, fixed-income securities, alternative/specialty securities, or cash equivalents.
This is a fairly new fund, being established in 2010 and has an initial investment of $5,000.
Past Performance: 1 year 12.19, 3 year 2.48%, 5 year N/A
Bottom Line
As the market hits all-time highs, and the geo-political landscape continues to be disruptive at best, it would make sense to look into market neutral investments like Long/Short Mutual Funds to protect against any sharp movement in either direction.
Read the analyst report on RYEUX
Read the analyst report on MPDAX
Read the analyst report on SWHEX
Read the analyst report on FMLSX
Read the analyst report on ASTZX
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