The Successful Long Short Fund

By Author: Jamie Hanson
Total Articles: 3495
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The success of the long short fund is not guaranteed however knowing what the overall objective is and how to gauge its success is very important. There are three basic goals that any long short fund should have. Those include making the fund less volatile with fewer overall fluctuations than other mutual funds. The next goal is for the long short fund to have a better rate of return than other stocks have historically had. The last goal is to provide investors with capital preservation as well as capital appreciation.

Since the long short fund has these goals it is important for investors to understand that the market returns should be ignored altogether. That's because the long short fund may underperform a bull market and will outperform exceptionally well during a bear market. Since a long short fund will perform differently than the S&P 500 in the short run it makes no sense to compare the results of the stocks in the long short fund.

Long short funds are still relatively new in the investment world simply because it was impossible to have a long short fund before 1997 due to securities laws. However, ...
... those laws have sense been amended and the long short fund can perform very well over a period of 10 years, but they haven't been around long enough to say how they will respond to 30 or 40 years of market fluctuations. In the past, hedge funds using this type of strategy have seen success however it remains to be seen how the long short fund will perform due to its higher costs, higher than normal turnover, and high pay to long short fund managers.

Keep in mind, too, that investors don't usually pay much attention to the long short fund until the market falls significantly. Investors are impressed with the fact that the long short mutual funds are still doing well and choose to add them to their portfolio. However, even though Long short funds have not been around long, if they can continue to provide less volatile returns they should be great long-term investments.

Long-Short mutual funds are offered by Bull Path Capital Management, a New York based registered equity asset management firm specializing in long-short strategies.