Long/short funds seek to gain from both winning and losing stocks, irrespective of the current market scenario. These funds use conventional methods to identify stocks that are either undervalued or overvalued. They profit from shorting overvalued stocks and by buying undervalued stocks. The main objective of these funds is to seek returns at minimal risk.
Take for example an investor who takes a $1.5 million short position in M&T Bank and a $1.5 million long position in JPMorgan Chase. Any decline in financial stocks will result in a profit on the M&T Bank position, and a loss on the JPMorgan position and vice versa. This will balance both positions and ensure lesser downside risk.
Below we share with you three top-ranked, long/short mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future.
Astor Long/Short I (MUTF:ASTIX) seeks appreciation of capital as well as income. ASTIX invests mainly in exchange-traded funds (ETFs) that normally invest in U.S. and non-U.S. common stocks, fixed-income securities, cash equivalents and specialty or alternative securities. The fund focuses on investing the bulk of its assets in ETFs. Astor Long/Short I has one-year annualized returns of 20.2%.
As of November 2017, ASTIX held 19 issues, with 14.54% of its assets invested in iShares Core S&P Total US Stock Mkt ETF.
Highland Long/Short Equity Z (MUTF:HEOZX) seeks above-average returns through growth of capital and various hedging activities. HEOZX attains its investment goals by spending a bulk of its assets on equity securities. Highland Long/Short Equity Zhas one-year annualized returns of 16.7%.
HEOZX has an expense ratio of 1.48% compared with the category average of 1.89%.
Guggenheim Long Short Equity P (MUTF:RYSRX) seeks appreciation of capital for the long run. RYSRX invests a large chunk of its assets in long and short positions. The fund invests primarily in equity-related instruments like derivatives and swaps and equity securities. Guggenheim Long Short Equity P has one-year annualized returns of 21.5%.
Burak Hurmeydan is one of the fund managers of RYSRX since 2017.
To view the Zacks Rank and past performance of all Long/Short mutual funds, investors can click here to see the complete list of long/short mutual funds.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>