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2 Market-Neutral Funds to Reduce Risk Amid Volatility
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In a volatile stock market, investors usually focus on a long-term strategy, rather than instant gratification, to protect themselves from the inconsistent ebbs and flows. In essence, they look to hedge risks and seek to invest in funds that reduce risk while providing returns spread over a period of time.
Market-neutral funds are designed to provide returns that are relatively unaffected by the state of the overall stock market. Adding these to the portfolio should boost returns and reduce risk. These typically deliver returns by combining long and short positions in various securities to raise return on investment, which is achieved by gaining from increasing as well as decreasing prices from one or more markets.
When one takes up a long position, they expect the stock price to increase over time so that they can sell these later to earn the difference. In a short position or when one short-sells, the stock price is expected to go down so that they can be bought later. Market-neutral strategy comes into play when these stances go awry. It helps an investor gain when a stock is decreasing despite the investor having taken a long position, and also helps one gain when a stock is increasing after a short-sell. This strategy balances short positions in stocks that are losing with long positions in outperforming stocks and is ideal for volatile markets like the one we are seeing currently. These funds focus on achieving a zero beta as opposed to the market index.
Hence, with recession looming large in the U.S economy, astute investors can look to invest in market-neutral funds at present. 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).
We have thus selected two such market-neutral funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, a low three-year beta and carry a low expense ratio.
Victory Market Neutral Income Fund Class A (CBHAX - Free Report) seeks high current income by implementing a proprietary, rules-based investment strategy designed to seek income from its investments while maintaining neutrality to foreign and domestic markets.
Three top holdings for CBHAX are 12.1% in Total Other, 2.8% in Total Money Market and 0.5% in Malayan Banking BHD. Mannik Dhillon has been the lead manager of CBHAX since May 30, 2018.
CBHAX’s 3-year and 5-year annualized returns are 4% and 3.4%, respectively. Its net expense ratio is 0.78% compared to the category average of 2.3%. The 3-year beta score for the fund is 0.09. CBHAX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Calamos Market Neutral Income Fund Class A (CVSIX - Free Report) seeks high current income alongside stability of the principal investment by investing in convertible securities of U.S. companies notwithstanding market capitalization. The average maturity term of the convertible securities purchased by CVSIX usually ranges from two to 10 years.
Three top holdings for CVSIX are 4.1% in Total Short Term Investments, 3.5% in Apple Inc. and 3.1% in Microsoft Corp. John Calamos has been the lead manager of CVSIX since Sep 3, 1990.
CVSIX’s 3-year and 5-year annualized returns are 2.8% and 3.1%, respectively. Its net expense ratio is 1.1% compared to the category average of 1.8%. The 3-year beta score for the fund is 0.19. CVSIX has a Zacks Mutual Fund Rank #1.
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2 Market-Neutral Funds to Reduce Risk Amid Volatility
In a volatile stock market, investors usually focus on a long-term strategy, rather than instant gratification, to protect themselves from the inconsistent ebbs and flows. In essence, they look to hedge risks and seek to invest in funds that reduce risk while providing returns spread over a period of time.
Market-neutral funds are designed to provide returns that are relatively unaffected by the state of the overall stock market. Adding these to the portfolio should boost returns and reduce risk. These typically deliver returns by combining long and short positions in various securities to raise return on investment, which is achieved by gaining from increasing as well as decreasing prices from one or more markets.
When one takes up a long position, they expect the stock price to increase over time so that they can sell these later to earn the difference. In a short position or when one short-sells, the stock price is expected to go down so that they can be bought later. Market-neutral strategy comes into play when these stances go awry. It helps an investor gain when a stock is decreasing despite the investor having taken a long position, and also helps one gain when a stock is increasing after a short-sell. This strategy balances short positions in stocks that are losing with long positions in outperforming stocks and is ideal for volatile markets like the one we are seeing currently. These funds focus on achieving a zero beta as opposed to the market index.
Hence, with recession looming large in the U.S economy, astute investors can look to invest in market-neutral funds at present. 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).
We have thus selected two such market-neutral funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, a low three-year beta and carry a low expense ratio.
Victory Market Neutral Income Fund Class A (CBHAX - Free Report) seeks high current income by implementing a proprietary, rules-based investment strategy designed to seek income from its investments while maintaining neutrality to foreign and domestic markets.
Three top holdings for CBHAX are 12.1% in Total Other, 2.8% in Total Money Market and 0.5% in Malayan Banking BHD. Mannik Dhillon has been the lead manager of CBHAX since May 30, 2018.
CBHAX’s 3-year and 5-year annualized returns are 4% and 3.4%, respectively. Its net expense ratio is 0.78% compared to the category average of 2.3%. The 3-year beta score for the fund is 0.09. CBHAX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Calamos Market Neutral Income Fund Class A (CVSIX - Free Report) seeks high current income alongside stability of the principal investment by investing in convertible securities of U.S. companies notwithstanding market capitalization. The average maturity term of the convertible securities purchased by CVSIX usually ranges from two to 10 years.
Three top holdings for CVSIX are 4.1% in Total Short Term Investments, 3.5% in Apple Inc. and 3.1% in Microsoft Corp. John Calamos has been the lead manager of CVSIX since Sep 3, 1990.
CVSIX’s 3-year and 5-year annualized returns are 2.8% and 3.1%, respectively. Its net expense ratio is 1.1% compared to the category average of 1.8%. The 3-year beta score for the fund is 0.19. CVSIX has a Zacks Mutual Fund Rank #1.
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 >>