We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Market-Neutral Funds to Hedge Against Market Risk
Read MoreHide Full Article
Wall Street has been facing bouts of volatility due to various macroeconomic uncertainties. The Federal Reserve’s decision over short-term interest rates and the consumer price index data for May are major events investors are looking forward to. Meanwhile, the S&P 500, the Nasdaq and the Dow have posted positive returns of 11.5%, 26.5%, and 2.1%, respectively, over the year-to-date period.
All eyes are on Fed’s decision, which could adopt a dovish stance and stop its aggressive interest rate hikes. After 10 consecutive hikes, currently, the interest rate is in the range of 5.00-5.25%, pushing borrowing costs to a 16-year high. In its upcoming policy meeting this month, the Fed is expected to strike the right balance between a higher interest rate and inflation to make a soft landing for the economy.
However, strength in the labor market raised concerns for the Fed. The unemployment rate is currently the lowest in a decade at 3.4%. Inflation was recorded at 4.9% in April, the lowest in a year. However, it is still two-fold higher than the Fed’s long-term inflation expectation. To control the sticky inflation from the labor market, it may continue to hike rates which doesn’t bode well for the economy and, in turn, the stock market. Inflation is currently following a downward trajectory and the full impact of the Fed's aggressive rate hikes is still making its way through the economy.
Looking at the current situation in the U.S. stock market, event-driven funds are particularly relevant for protecting one’s invested capital. 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 market-neutral mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), have positive three-year and five-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
Gabelli Enterprise Mergers and Acquisitions Fund (EMAAX - Free Report) invests most of its net assets in equity securities of domestic and foreign companies that are likely acquisition targets within 12 to 18 months. EMAAX advisors may also invest in companies that have publicly announced mergers, takeovers, tender offers, leveraged buyouts, spinoffs, liquidations and other corporate restructuring.
Mario J. Gabelli has been the lead manager of EMAAX since Feb 28, 2001, and most of the fund’s exposure is in companies like Myers Industries (5.02%), South Jersey Industry (3.93%), Aerojet Rocketdyne (3.45%) as of Mar 1,2023.
EMAAX’s three-year and five-year annualized returns are 5.7% and 1.8%, respectively. It has a Zacks Mutual Fund Rank #3 and an annual expense ratio of 1.71% compared with the category average of 1.90%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The Merger Fund (MERFX - Free Report) invests most of its net assets in common stock, preferred stock and warrants of companies that have publicly announced mergers, takeovers, tender offers, leveraged buyouts, spinoffs, liquidations and corporate restructuring. MERFX advisors use specialized investment methods to profit from the successful completion of such events.
Roy D. Behren has been the lead manager of MERFX since Jan 24, 2007, and most of the fund’s exposure is in companies like First Horizon (3.42%), Horizon Therapeutics (2.79%), and Store Capital (2.71%) as of Dec 31, 2022.
MERFX’s three-year and five-year annualized returns are 2.0% and 3.4%, respectively. It has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.50% compared with the category average of 1.90%.
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, spinoffs, liquidations and other corporate reorganizations.
John S. Orrico has been the lead manager of ARGAX since Sep 18, 2000, and most of the fund’s exposure is in companies like Tegna (3.20%), Activision Blizzard (3.20%) and First Horizon (3.01%) as of Nov 30, 2022.
ARGAX’s three-year and five-year annualized returns are 4.0% and 3.8%, respectively. It has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.46% 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 >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
3 Market-Neutral Funds to Hedge Against Market Risk
Wall Street has been facing bouts of volatility due to various macroeconomic uncertainties. The Federal Reserve’s decision over short-term interest rates and the consumer price index data for May are major events investors are looking forward to. Meanwhile, the S&P 500, the Nasdaq and the Dow have posted positive returns of 11.5%, 26.5%, and 2.1%, respectively, over the year-to-date period.
All eyes are on Fed’s decision, which could adopt a dovish stance and stop its aggressive interest rate hikes. After 10 consecutive hikes, currently, the interest rate is in the range of 5.00-5.25%, pushing borrowing costs to a 16-year high. In its upcoming policy meeting this month, the Fed is expected to strike the right balance between a higher interest rate and inflation to make a soft landing for the economy.
However, strength in the labor market raised concerns for the Fed. The unemployment rate is currently the lowest in a decade at 3.4%. Inflation was recorded at 4.9% in April, the lowest in a year. However, it is still two-fold higher than the Fed’s long-term inflation expectation. To control the sticky inflation from the labor market, it may continue to hike rates which doesn’t bode well for the economy and, in turn, the stock market. Inflation is currently following a downward trajectory and the full impact of the Fed's aggressive rate hikes is still making its way through the economy.
Looking at the current situation in the U.S. stock market, event-driven funds are particularly relevant for protecting one’s invested capital. 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 market-neutral mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), have positive three-year and five-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
Gabelli Enterprise Mergers and Acquisitions Fund (EMAAX - Free Report) invests most of its net assets in equity securities of domestic and foreign companies that are likely acquisition targets within 12 to 18 months. EMAAX advisors may also invest in companies that have publicly announced mergers, takeovers, tender offers, leveraged buyouts, spinoffs, liquidations and other corporate restructuring.
Mario J. Gabelli has been the lead manager of EMAAX since Feb 28, 2001, and most of the fund’s exposure is in companies like Myers Industries (5.02%), South Jersey Industry (3.93%), Aerojet Rocketdyne (3.45%) as of Mar 1,2023.
EMAAX’s three-year and five-year annualized returns are 5.7% and 1.8%, respectively. It has a Zacks Mutual Fund Rank #3 and an annual expense ratio of 1.71% compared with the category average of 1.90%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The Merger Fund (MERFX - Free Report) invests most of its net assets in common stock, preferred stock and warrants of companies that have publicly announced mergers, takeovers, tender offers, leveraged buyouts, spinoffs, liquidations and corporate restructuring. MERFX advisors use specialized investment methods to profit from the successful completion of such events.
Roy D. Behren has been the lead manager of MERFX since Jan 24, 2007, and most of the fund’s exposure is in companies like First Horizon (3.42%), Horizon Therapeutics (2.79%), and Store Capital (2.71%) as of Dec 31, 2022.
MERFX’s three-year and five-year annualized returns are 2.0% and 3.4%, respectively. It has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.50% compared with the category average of 1.90%.
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, spinoffs, liquidations and other corporate reorganizations.
John S. Orrico has been the lead manager of ARGAX since Sep 18, 2000, and most of the fund’s exposure is in companies like Tegna (3.20%), Activision Blizzard (3.20%) and First Horizon (3.01%) as of Nov 30, 2022.
ARGAX’s three-year and five-year annualized returns are 4.0% and 3.8%, respectively. It has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.46% 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 >>