The aim of market neutral funds is to invest in bullish stocks and an equivalent number of bearish stocks. The objective is to generate above-average returns at relatively lower levels of risk. In fact, this category of funds adopts a precision approach to long-short investing, by ignoring the market’s direction. This is particularly relevant in today’s highly volatile market scenario when the objective is to protect the capital invested. This approach aims to identify pairs of assets whose price movements are related. Subsequently, the fund goes long on the outperforming asset and shorts the underperformer. Market neutrality is achieved by allocating the same proportion of assets to both positions.
Below we will share with you 4 buy-rated market neutral mutual funds. Each has earned either a Zacks Mutual Fund Rank #1 (Strong Buy) or a Zacks Mutual Fund Rank #2 (Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all market neutral mutual funds, investors can click here to see the complete list of funds.
Calamos Market Neutral Income A (CVSIX - Free Report) invests in equity securities of domestic companies irrespective of their market capitalization. CVSIX also employs short selling to reduce market risk and generate more income. Its average maturity varies within the range of 2 to 10 years. CVSIX may also invest a major portion of its assets in junk bonds. CVSIX has 5-year annualized return of 4.7%.
CVSIX’s annual expense ratio of 1.09% is lower than the category average of 1.63%.
Gateway A (GATEX - Free Report) seeks to achieve maximum return from equity markets with less risk. The fund focuses on acquiring common stocks to add to its well diversified portfolio. The fund invests a significant share of its assets in index call options in order to reduce volatility and maintain steady cash flow. However, it may also reduce fund’s profit making ability. GATEX has 5-year annualized return of 5.6%.
Paul R. Stewart is the fund manager and has managed GATEX since 2006
TFS Market Neutral uses Davis Investment Discipline to invest a minimum of 80% of its net assets in securities issued by companies engaged in the financial services sector. These companies own financial services-related assets that are at least 50% of the value of total assets or earn a minimum of 50% of revenues from offering financial services. RPFGX has returned 14.4% over the last one-year period. TFSMX has 5-year annualized return of 4.5%.
TFSMX’s annual expense ratio of 2.02% is higher than the category average of 1.63%.
AB Market Neutral Strategy US A generally invests in companies that are traded in domestic exchanges. It allocates a significant portion of its assets in small cap companies having market capitalizations between $500 million and $2 billion. The fund may also invests a maximum of one-fourth share of its assets in registered investment companies ("RICs"). It seeks long-term capital growth to produce returns which have low level of correlation with the S&P 500 Index. AMUAX has 5-year annualized return of 0.1%.
Yun Chen is the fund manager and has managed this fund since 2010.
To view the Zacks Rank and past performance of all market neutral mutual funds, investors can click here to see the complete list of funds.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.