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4 Mutual Funds to Protect Against Market Volatility

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It’s a Bull market! No, the Bear is upon us!  Lately, no matter what financial channel you flip to, or the page on your favorite financial research web site (FYI, Zacks.com is a great place for research), you will see one talking head saying one thing while another talking head is saying the exact opposite about the future of the market.

Specifically, the bulls will say, that the American economy is still strong and unemployment is extremely low, while the bears will point to unrest in the world, and that the market is beginning to dip from all-time highs to prove that the market is going to crash.

But who is right? 

Wouldn’t it be great if you could invest in a vehicle that takes the best of each prediction?  One that goes after growth stories, while protecting against any sudden downturn? Given the state of the world, and the conflicting future expectations regarding the economy, wouldn’t it make sense to protect against a potential downturn while still investing in growing equities?

That is where a Long/Short Mutual Fund comes into play. 

This unique investment vehicle utilizes leverage, derivatives, and short positions in order to maximize total returns, no matter the market conditions.  Essentially, the fund is attempting to gain the advantages of a hedge fund, but with lower fees, and no lockout periods.

Traditionally, the long/short fund will go long (buy) companies the fund manager expects to increase in value while, shorting securities of companies the manager expects to decline in price.  The fund may also utilize ETF’s, futures, or index options to hedge out the market risk if the risk levels get too high for the manager.

Finding the Best Long/Short Mutual Funds

By utilizing the Zacks Mutual Fund Rank, we found 4 Long/Short Mutual funds that are relatively cheap to enter, are not front loaded, and have minimal fees while producing large positive gains.  These funds are worth looking into during these times of uncertainty, and volatility.

4 Long/Short Mutual Funds to Consider

Pear Tree Quality Ordinary (USBOX - Free Report) a Zacks Rank #1 (Strong Buy) seeks long-term growth of capital and income by investing primarily in the common stocks of larger companies with equity capital that are currently paying dividends. The fund is designed to be a core large cap common stock portfolio that can be utilized either alone or in conjunction with more narrowly differentiated strategies. The fund employs a conservative equity investment strategy that makes it well suited for longer-term investors seeking a domestic stock fund.  Dividends and capital gains are distributed annually. This fund was established in 2011, and is well diversified across multiple sectors.

Past Performance: 1 year 3.2%, 3 year 8.7%, 5 year 10.3%.

Glenmede Long/Short (GTAPX - Free Report) a Zacks Rank #1 (Strong Buy) utilizes proprietary, sector-specific models to identify stocks with the potential to outperform (long positions) and underperform (short positions), based on a combination of valuation, fundamental, earnings and technical characteristics.  The fund attempts to optimize the portfolio to provide broad diversification across sectors, industries and individual companies according to management.  The fund was established in 2006, and is well diversified across 10 sectors. 

Past Performance: 1 year 2.6%, 3 year 4.7%, 5 year 5.1%.

Schwab Hedged Equity (SWHEX - Free Report) a Zacks Rank #1 (Strong Buy) seeks long-term capital appreciation with lower volatility than the overall market. To pursue its investment objective, the fund establishes long and short positions in equity securities issued by U.S. companies. The fund may purchase or sell short securities of companies of any size. The fund offers dividends and capital gains annually. The fund was established in 2002, and is weighted towards the Financial and Technology sectors but has positions in many other sectors as well.

Past Performance: 1 year 0.8%, 3 year 6.5%, 5 year 5.5%.

Boston Partners Long/Short Equity (BPLEX) a Zacks Rank #1 (Strong Buy) seeks long-term capital appreciation while minimizing exposure to general equity market risk. The fund seeks a total return greater than that of U.S. 1-Month Treasury Bill Index. Under normal circumstances, the fund invests at least 80% of its net assets in equity securities. The fund may invest 20% of its total assets directly in equity securities of foreign issuers and about 15% in illiquid securities, including securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale. The fund declares and pays dividends and capital gains annually.  The fund was established in 1998, and is well diversified with extra weight in the Financial and Industrial sectors. 

Past Performance: 1 year 0.3%, 3 year 1.9%, 5 year 5.4%.

Bottom Line

As the market hovers around its all-time highs, and the geo-political landscape continues to be disruptive at best, it would make sense to look into market neutral investments like Long/Short Mutual Funds to protect against any sharp movement in either direction.  

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