Want to invest in the market but don’t want to be tied to the hopes that it will always go up? Consider the Wasatch Long/Short Fund (MUTF:FMLSX). Just as the name implies, longtime managers Michael Shinnick and Ralph Shive stake out investments they think are best based on the direction of the market as much as the underlying fundamentals of the investments themselves. That involves going long when a stock looks good, or going short when things look particularly ugly.
Explaining the methodology is like dissecting a hedge fund. To find gaps in pricing, the Wasatch fund uses just about every approach to valuation. There is macro analysis to get a sense of the overall economic environment. Next, Wasatch uses fundamental analysis — such as discounted cash flows — on companies. The fund even will use technical analysis to get further confirmation on a trade.
It’s a lot of work, but it is highly profitable. The fund has five-year returns of 3% annually and three-year returns of 16% annually. All with a reasonable 1.3% expense ratio, considering the brain calisthenics necessary for such a sophisticated strategy.