U.S. stock markets have been volatile for a pretty long stretch. Market volatility can make anyone antsy. It threatens the one thing that everybody holds dear – their money. Given the erratic economic conditions that are prevailing, a market-neutral fund is particularly relevant when it comes to protecting one’s invested capital. This type of funds is designed to provide stable returns at relatively lower levels of risk regardless of market direction.
Market-neutral funds aim to adopt a precision approach by shorting 50% of their assets and holding 50% long. This method seeks to identify pairs of assets whose price movements are related. The fund goes long on the outperforming asset and shorts the underperformer.
Say, for example, you take a $1 million long position in Pfizer and a $1 million short position in Wyeth. Both are large pharmaceutical companies. Now, if pharmaceutical stocks fall, you will lose because of your long position in Pfizer but gain from the short position in Wyeth.
Below we share with you three top-rated market neutral mutual funds . Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all market neutral mutual funds, investors can click here to see the complete list of funds .
JPMorgan Multi-Cap Market Neutral A (OGNAX) focuses on acquiring common stocks of companies that are believed to have impressive growth potential. OGNAX may also invest in ‘short selling’ stocks. The fund invests in companies from different domains irrespective of their market capitalization in order to minimize exposure to domestic markets. OGNAX seeks preservation of capital over the long run. The JPMorgan Multi-Cap Market Neutral A fund has a three-year annualized return of 2.3%.
As of January 2016, OGNAX held 309 issues with 15.27% of its assets invested in Dominion Resources Inc.
Gateway C (GTECX) seeks maximum return from equity markets with less risk. GTECX focuses on acquiring common stocks to add to its well-diversified portfolio. The fund invests a significant share of its assets in index call options in order to reduce volatility and maintain steady cash flow. However, this may curtail the fund’s profit-making ability. The Gateway C fund has a three-year annualized return of 2.2%.
GTECX has an expense ratio of 1.70% as compared to the category average of 1.82%.
Calamos Market Neutral Income C (CVSCX) invests in equity securities of domestic companies irrespective of their market capitalization. CVSCX also employs short selling to reduce market risk and generate more income. Its average maturity varies within 2 to 10 years. The fund may also invest a major portion of its assets in high yield fixed-income securities mostly known as junk bonds. The Calamos Market Neutral Income C fund has a three-year annualized return of 1.3%.
As of December 2015, CVSCX held 648 issues with 2.71% of its assets invested in Apple Inc.
To view the Zacks Rank and past performance of all market neutral mutual funds, investors can click here to see the complete list of funds .
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Get Your Free (OGNAX): Fund Analysis Report
Get Your Free (GTECX): Fund Analysis Report
Get Your Free (CVSCX): Fund Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research