Many market-neutral mutual funds designed to provide steady returns during down markets have failed to live up to expectations, even performing worse than market indexes, according to the Wall Street Journal. The Forward Long/Short Credit Analysis fund, which invests mostly in corporate and low-quality municipal bonds, is down 17% year-to-date, according to Morningstar Inc. Other underperforming funds include the Analytic Global Long-Short fund, down 4.7% year-to-date; Robeco Boston Partners Long/Short Equity, down 3.9%; State Street Global Advisors' Directional Core Equity fund, which is down 3.8%; and DWS Disciplined Market Neutral fund, down 3.6%. The Dow Jones Industrial Average is up 8.7% and the Standard & Poor's 500 stock-index is up 5.6% this year. "Long-short" funds often use investing strategies similar to hedge funds, including short-selling. Managers of funds with negative returns often blame poor performance on the tough credit market and a shift in stock markets from value stocks to growth stocks. By using different strategies, performance results have varied widely. The Caldwell & Orkin Market Opportunity fund is up 33% for the year, due in part to its strategy regarding home-building and subprime mortgage-related stocks. This same strategy put the fund behind the S&P 500 index by eight percentage points in 2006. "We're not going to always be in tune with the market," says manager Michael Orkin, adding that long-term strategies have allowed the fund to "minimize our risks and minimize our losses."

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