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3 Market-Neutral Funds to Navigate Through Turbulent Times
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Wall Street has been under a bout of volatility since the beginning of 2022 and all major indices are hovering in bearish territory. Various macroeconomic factors and growing geopolitical tension have created a bearish sentiment among investors. The S&P 500, the DOW & the Nasdaq have given a negative return of 16.77%, 11.92%, and 24.67%, respectively, so far this year.
The consumer price index for July increased 8.5% year over year, according to the data published by the Bureau of Labor Statistics. Though the inflation rate shows a slower annual increase compared to June, thanks to lower gasoline prices, it is still in the undesired territory for the Federal Reserve and the average American. The Fed has reaffirmed hiking interest rates to counter inflation, a move that could increase the cost of borrowing, impact consumer spending and slow down economic growth
On the other side, Russia’s war against Ukraine and rising tension between China and Taiwan have led to further global supply chain disruption. This, along with the fresh COVID-19 protocol implemented in China, has impacted corporate profits as companies will take time to overcome regulatory, financial, and technology hurdles.
Looking at the current situation in the U.S. stock market, market-neutral and event-driven funds are particularly relevant for protecting one’s invested capital. This type of fund provides stable returns at a relatively lower level of risk regardless of market direction. Market-neutral funds are designed to adopt a more precise approach by shorting 50% of the assets and holding 50% long. This method seeks to identify pairs of assets, which have related price movements. The funds go long on the outperforming asset and short the underperformer.
An event-driven strategy takes advantage of temporary price action, which can take place before or after corporate events such as restructurings, mergers/acquisitions, bankruptcy, spinoffs, takeovers, and others under the guidance of teams of experts who can analyze such corporate actions and determine the effect of the action on a company's stock price.
Thus, we have selected three such market-neutral mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Hussman Strategic Growth Fund (HSGFX - Free Report) invests most of its net assets in common stocks picked by the fund manager. HSGFX also invests in options and index futures, as well as other hedging strategies, to neutralize the risk during adverse market conditions.
John P. Hussman has been the lead manager of HSGFX since Jul 24, 2000, and most of the fund’s exposure is in sectors such as Technology, Retail Trade, and Non-Durable as of 7/31/2022.
HSGFX’s three-year and five-year annualized returns are 5.6% and 1.2%, respectively. HSGFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.23%, compared with the category average of 1.92%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The Arbitrage Fund (ARGAX - Free Report) invests most of its net assets in common and preferred stocks of foreign and domestic companies, ARGAX advisors mostly invest in highly specialized investment approaches like mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations.
John Orrico has been the lead manager of ARGAX since Sep 18, 2000, and most of the fund’s exposure is in sectors such as technology, other, and industrial cyclical as of 7/31/2022.
ARGAX’s three-year and five-year annualized returns are 4.3% and 3.5%, respectively. ARGAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.51%, compared with the category average of 1.90%.
BlackRock Event Driven Equity Fund Investor A Shares (BALPX - Free Report) seeks long-term capital growth by investing most of its net assets in common stock, preferred stock, convertible securities, non-convertible preferred stock, and depositary receipts. BALPX advisors mostly use event-driven strategies to invest in companies that have announced to undergo material changes.
Mark McKenna has been the lead manager of BALPX since May 6, 2015, and most of the fund’s exposure is in sectors such as Technology, Retail Trade, and Non-Durable as of 7/31/2022.
BALPX’s three-year and five-year annualized returns are 2.70% and 3.53%, respectively. BALPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.41%, compared with the category average of 1.90%.
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3 Market-Neutral Funds to Navigate Through Turbulent Times
Wall Street has been under a bout of volatility since the beginning of 2022 and all major indices are hovering in bearish territory. Various macroeconomic factors and growing geopolitical tension have created a bearish sentiment among investors. The S&P 500, the DOW & the Nasdaq have given a negative return of 16.77%, 11.92%, and 24.67%, respectively, so far this year.
The consumer price index for July increased 8.5% year over year, according to the data published by the Bureau of Labor Statistics. Though the inflation rate shows a slower annual increase compared to June, thanks to lower gasoline prices, it is still in the undesired territory for the Federal Reserve and the average American. The Fed has reaffirmed hiking interest rates to counter inflation, a move that could increase the cost of borrowing, impact consumer spending and slow down economic growth
On the other side, Russia’s war against Ukraine and rising tension between China and Taiwan have led to further global supply chain disruption. This, along with the fresh COVID-19 protocol implemented in China, has impacted corporate profits as companies will take time to overcome regulatory, financial, and technology hurdles.
Looking at the current situation in the U.S. stock market, market-neutral and event-driven funds are particularly relevant for protecting one’s invested capital. This type of fund provides stable returns at a relatively lower level of risk regardless of market direction.
Market-neutral funds are designed to adopt a more precise approach by shorting 50% of the assets and holding 50% long. This method seeks to identify pairs of assets, which have related price movements. The funds go long on the outperforming asset and short the underperformer.
An event-driven strategy takes advantage of temporary price action, which can take place before or after corporate events such as restructurings, mergers/acquisitions, bankruptcy, spinoffs, takeovers, and others under the guidance of teams of experts who can analyze such corporate actions and determine the effect of the action on a company's stock price.
Moreover, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Thus, we have selected three such market-neutral mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Hussman Strategic Growth Fund (HSGFX - Free Report) invests most of its net assets in common stocks picked by the fund manager. HSGFX also invests in options and index futures, as well as other hedging strategies, to neutralize the risk during adverse market conditions.
John P. Hussman has been the lead manager of HSGFX since Jul 24, 2000, and most of the fund’s exposure is in sectors such as Technology, Retail Trade, and Non-Durable as of 7/31/2022.
HSGFX’s three-year and five-year annualized returns are 5.6% and 1.2%, respectively. HSGFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.23%, compared with the category average of 1.92%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The Arbitrage Fund (ARGAX - Free Report) invests most of its net assets in common and preferred stocks of foreign and domestic companies, ARGAX advisors mostly invest in highly specialized investment approaches like mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations.
John Orrico has been the lead manager of ARGAX since Sep 18, 2000, and most of the fund’s exposure is in sectors such as technology, other, and industrial cyclical as of 7/31/2022.
ARGAX’s three-year and five-year annualized returns are 4.3% and 3.5%, respectively. ARGAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.51%, compared with the category average of 1.90%.
BlackRock Event Driven Equity Fund Investor A Shares (BALPX - Free Report) seeks long-term capital growth by investing most of its net assets in common stock, preferred stock, convertible securities, non-convertible preferred stock, and depositary receipts. BALPX advisors mostly use event-driven strategies to invest in companies that have announced to undergo material changes.
Mark McKenna has been the lead manager of BALPX since May 6, 2015, and most of the fund’s exposure is in sectors such as Technology, Retail Trade, and Non-Durable as of 7/31/2022.
BALPX’s three-year and five-year annualized returns are 2.70% and 3.53%, respectively. BALPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.41%, compared with the category average of 1.90%.
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 >>