Long Short Fund Basics

By Author: Jamie Hanson
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The long short fund is simply a mutual fund that uses hedge fund trading strategies. The difference of long short funds versus the average mutual fund is that they use short positions to maximize returns no matter what the market conditions are. There are laws that control how many short positions and derivatives may be used in a long short fund, so there are controls governing how successful these funds can be. The majority of investments in a long short fund are in stocks so there are certainly risks out there.

Why Invest in a Long Short Fund?
Many investors are unaware of the long short fund and don't know why it would be beneficial. Basically, a long short fund is the method created by the mutual fund industry to offer the average investor hedge fund advantages. The advantage the long short fund has over a traditional hedge fund is that the fees are generally lower and there is no lock in period that applies. On the other hand, the fees associated with the long short fund will be higher than the majority of mutual funds. The long short fund is different from mutual funds as well on the minimum investment front. ...
... In most cases investors will need to invest a minimum of $1,000 or more. On the other hand, the long short fund can't include as many short positions, derivatives, and leverage as the hedge funds are allowed to. Nevertheless, investors will find the long short fund diversifies their portfolio regardless of market direction.

Of course, today's investors are wary of putting all their eggs in one basket, so to speak, and diversification truly is necessary to reduce the chances of losing everything in a volatile market. Luckily, investors taking advantage of the benefits of the long short fund will be able, in principle, to make money when the market is both up and down.

Keep in mind the long short fund has not been around for too long, which means its overall success over the long haul has yet to be seen. However, many investors and fund managers are hopeful that this type of investment will play out the way everyone hopes it will. Time is the only way to find out whether the long short fund is worth its newfound popularity.

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.