Market neutral funds aim 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 2 top rated market neutral mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all market neutral funds, then click here.
American Century Equity Market Neutral A (ALIAX) seeks capital growth. The fund focuses on investing in publicly traded domestic companies with a market cap exceeding $1 billion. The fund utilizes a bottom up approach to selecting securities and takes long or short positions on them depending on whether they believe the relevant security is undervalued or overvalued. It benchmarks its returns against those on 3-month U.S. treasury Bills. This market neutral mutual fund returned 4.55% in the last one year period.
The market neutral mutual fund has a minimum initial investment of $2,000 and an expense ratio of 1.25% against a category average of 1.31%.
Virtus Market Neutral A (EMNAX) utilizes a blended strategy and holds a portfolio consisting of both growth and value stocks, issued by both domestic and foreign companies. The fund not only short sells specific securities, it may also purchase or short sell related futures or options. It purchases securities regardless of the size of the issuer and may also invest in exchange traded funds (ETFs). The market neutral mutual fund has a three year annualized return of 0.18%.
Robert P. Eastman is the fund manager and has managed this market neutral mutual fund since 2008.
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. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds.
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