Long/short funds use conventional methods to identify stocks that are either undervalued or overvalued. These funds seek to gain from both winning and losing stocks, irrespective of the current market scenario. They profit from shorting overvalued stocks and by buying undervalued stocks. The main objective of these funds is to seek returns at minimal risk.
For example, an investor takes $2 million short position in M&T Bank and $2 million long position in JPMorgan Chase. So, any decline in financial stocks will result in a profit on the M&T Bank position, and a loss on the JPMorgan position and vice versa. This will balance both positions and ensure lower downside risk.
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.
Astor Dynamic Allocation I (ASTIX – Free Report) seeks appreciation of capital as well as income. ASTIX invests mainly in exchange-traded funds (ETFs) that normally invest in U.S. and non-U.S. common stocks, fixed-income securities, cash equivalents and specialty or alternative securities. The fund focuses on investing the bulk of its assets in ETFs. Astor Long/Short I has one-year annualized returns of 12.4%.
As of August 2018, ASTIX held 16 issues, with 14.42% of its assets invested in iShares Core S&P Total US Stock Mkt ETF.
Schwab Hedged Equity (SWHEX – Free Report) invests a large chunk of its assets in long and short positions with respect to equity securities of U.S. companies. SWHEX seeks appreciation of capital for the long run. The fund focuses on common stocks of companies with market-cap of more than $1 billion. Schwab Hedged Equity has an one-year annualized returns of 6.1%.
Jonas Svallin is one of the fund managers of SWHEX since 2012.
AB Select US Long/Short Advisor (ASYLX – Free Report) seeks capital growth for the long run. ASYLX invests a huge portion of its assets in equity securities, including cash and U.S. cash equivalents of domestic companies. The fund invests mainly in large- and mid-cap companies, but may also maintain long and short positions in securities of small-cap companies. AB Select US Long/Short Advisor has one-year annualized returns of 13.2%.
ASYLXhas an expense ratio of 1.64% as compared to the category average of 2.36%.
To view the Zacks Rank and past performance of all Long/Short mutual funds, investors can click here to see the complete list of long/short mutual funds.
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