With the popularity of hedge funds on the rise, many retail investors may be interested in cashing in on the same kind of strategies in the more familiar format of mutual funds, but such funds have floundered. Among 29 mutual funds listed in Bloomberg that are in a market-neutral category, average return has been only 2.4% over the past three years ending June 24, said Bloomberg News columnist Chet Currier. Average stock funds posted 10.9% over the same period.
Market neutral funds balance stock purchases with short positions in an effort to capitalize on the market's ups and downs. However, it hasn't been a successful gambit for mutual funds, and "We've already had plenty of instances in which these types of funds have crashed and burned," commented Kunal Kapoor, director of mutual fund analysis at Morningstar.
"It's a very different time frame, and a very different type of research," explained Robert Pozen, chairman of MFS Investment Management.
However, some fund managers still believe that long-short funds have potential, especially those who manage one. Charles Bath helps manage the Diamond Hill Focus Long-Short Fund, which has only $140 million in assets. He said that the fund takes a long view, even when shorting stocks, but that it is an opportunity to reap a benefit from overpriced stocks. The extra cost of shorting is not as significant in an environment of low interest rates and relatively low stock dividend yields, he said.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.