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3 Long/Short Mutual Funds to Hedge Market Volatility
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After an unprecedented stretch of calm during summer, equities see-sawed this month with investors anticipating interest rate decisions from the Federal Reserve and Bank of Japan today. On top of that, developments like discouraging corporate earnings, stretched valuations and presidential elections are expected to keep markets choppy (read more: Top 5 Low Beta Stocks to Sail through a Volatile Market).
To sidestep roller-coaster rides, invest in Long/Short mutual funds. Why so? Because Equity long/short funds seek to gain from both winning and losing stocks, irrespective of the current market scenario. These funds use conventional methods to identify stocks that are either undervalued or overvalued. They profit from shorting overvalued stocks and by buying undervalued stocks. Weights are subject to change and are dependent on management’s view of the market.
For example: Say an investor buys a long/short mutual fund for $100, the fund manager will then invest it in assets that are expected to do well. The manager shorts $30 in stocks that are believed to be overvalued. In the process, he receives $30 in cash. He will now use that $30 to buy more assets with an upside potential. So, now he has a total of $130 invested in long positions and $30 in short positions. This type of long/short fund is called a 130/30 mutual fund.
Boston Partners Long/Short Equity Investor (BPLEX - Free Report) seeks long-term capital appreciation. BPLEX invests the majority of its assets in equity securities. The fund invests in long positions in stocks identified by the Adviser as undervalued, but it will not exceed approximately 125% of its net assets. BPLEX also takes short positions in stocks that the Adviser has identified as overvalued. Boston Partners Long/Short Equity Investor has a year-to-date return of 10.8%.
Robert Jones has been its portfolio manager since 1998.
Glenmede Long/Short (GTAPX - Free Report) invests the majority of its assets in long and short positions with respect to equity securities like common stocks of U.S. public companies. GTAPX will purchase stocks that have market capitalization within the range of any stock listed on the Russell 3000 Index. Glenmede Long/Short seeks total return and has a year-to-date return of 0.7%.
As of April 2016, GTAPX held 226 issues, with 1.37% of its assets invested in Newmont Mining Corp.
Federated Ultrashort Bond A (FULAX - Free Report) seeks total return. FULAX mostly invests in investment-grade, fixed-income securities. FULAX also invest a maximum 35% of its assets in noninvestment-grade, fixed-income securities. The fund may invest in government securities that are supported by the credit of the U.S. government. Federated Ultrashort Bond A has a year-to-date return of 1.1%.
Randall Bauer has been its portfolio manager since 1997.
Image: Bigstock
3 Long/Short Mutual Funds to Hedge Market Volatility
After an unprecedented stretch of calm during summer, equities see-sawed this month with investors anticipating interest rate decisions from the Federal Reserve and Bank of Japan today. On top of that, developments like discouraging corporate earnings, stretched valuations and presidential elections are expected to keep markets choppy (read more: Top 5 Low Beta Stocks to Sail through a Volatile Market).
To sidestep roller-coaster rides, invest in Long/Short mutual funds. Why so? Because Equity long/short funds seek to gain from both winning and losing stocks, irrespective of the current market scenario. These funds use conventional methods to identify stocks that are either undervalued or overvalued. They profit from shorting overvalued stocks and by buying undervalued stocks. Weights are subject to change and are dependent on management’s view of the market.
For example: Say an investor buys a long/short mutual fund for $100, the fund manager will then invest it in assets that are expected to do well. The manager shorts $30 in stocks that are believed to be overvalued. In the process, he receives $30 in cash. He will now use that $30 to buy more assets with an upside potential. So, now he has a total of $130 invested in long positions and $30 in short positions. This type of long/short fund is called a 130/30 mutual fund.
Below we share with you three top-rated, long/short mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of long/short mutual funds, their Zacks Rank and past performance.
Boston Partners Long/Short Equity Investor (BPLEX - Free Report) seeks long-term capital appreciation. BPLEX invests the majority of its assets in equity securities. The fund invests in long positions in stocks identified by the Adviser as undervalued, but it will not exceed approximately 125% of its net assets. BPLEX also takes short positions in stocks that the Adviser has identified as overvalued. Boston Partners Long/Short Equity Investor has a year-to-date return of 10.8%.
Robert Jones has been its portfolio manager since 1998.
Glenmede Long/Short (GTAPX - Free Report) invests the majority of its assets in long and short positions with respect to equity securities like common stocks of U.S. public companies. GTAPX will purchase stocks that have market capitalization within the range of any stock listed on the Russell 3000 Index. Glenmede Long/Short seeks total return and has a year-to-date return of 0.7%.
As of April 2016, GTAPX held 226 issues, with 1.37% of its assets invested in Newmont Mining Corp.
Federated Ultrashort Bond A (FULAX - Free Report) seeks total return. FULAX mostly invests in investment-grade, fixed-income securities. FULAX also invest a maximum 35% of its assets in noninvestment-grade, fixed-income securities. The fund may invest in government securities that are supported by the credit of the U.S. government. Federated Ultrashort Bond A has a year-to-date return of 1.1%.
Randall Bauer has been its portfolio manager since 1997.
To view the Zacks Rank and past performance of all long/short mutual funds, investors can click here to see the complete list of funds.
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