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Equity Funds

Beginner's Guide to Long/Short Equity Mutual Funds

Chris Dumont Dec 09, 2014



Be sure to also see the 10 Mutual Funds for Hard-to-Reach Places.


How Long/Short Equity Mutual Funds Can Be Used in a Portfolio


Traditionally the majority of mutual funds are long-only, so long/short equity mutual funds give the manager more flexibility to act on their analysis. As a result, a manager’s stock picking skill is very important with these types of mutual funds.

There are many different types as well, including “market neutral” funds where positions are designed to negate market movements entirely, and are on the safer side, to riskier funds such as a “middle of the road” approach where a fund is more weighted on the long or short side. They can also be differentiated in other ways including market geography (emerging markets, Asia, Europe, etc), investment philosophy, and sector.

As with any type of investment, there are risks involved as well. The biggest drawback is the high fees associated with the funds, because active management is required by the fund manager. According to Morningstar, average fees for long/short equity mutual funds exceed 2% of assets per year, compared to 1.3% for plain vanilla mutual funds. Moreover, in relation to the active management required, again there is a lot more emphasis placed on the manager’s skill of choosing the right stocks to buy and sell short. If the manager is wrong, then that will eat into the investor’s returns. There can also be correlation risk, where the offsetting investment is not perfectly correlated, giving more market exposure than intended (mostly in relation to the market neutral strategies, thus not making it 100% market neutral).

Be sure to see the Cheapest Mutual Funds for Every Investment Objective.


Benefits of Utilizing Long/Short Equity Mutual Funds


Furthermore, compared to hedge funds, long/short equity mutual funds do not require a minimum investment, thus appealing to a broader set of investors, and are much more liquid with daily pricing. The ability to liquidate a position at any given time should give any investor comfort, and long/short strategies give the possibility of excess returns when compared to index funds.


Tax Considerations


Learn more about How Mutual Funds Are Taxed.


Biggest Long/Short Equity Mutual Funds


AllianceBernstein Select US Long/Short Portfolio (ASLAX)

  • Total Assets: $1.81B
  • MER: 2.25%-

Diamond Hill Long-Short Fund (DIAMX)

  • Total Assets: $3.82B
  • MER: 1.43%

Gateway Fund (GATEX)

  • Assets: $8.18B
  • MER: 0.94%

MainStay Marketfield Fund (MFADX)

  • Assets: $16.04B
  • MER: 1.78%

Robeco Boston Partners Long/Short Research Fund (BPIRX)

  • Assets: $5.6B
  • MER: 1.48%

Neuberger Berman Long Short Fund (NLSAX)

  • Assets: $3.23B
  • MER: 1.96%


The Bottom Line


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