Long Short Mutual Funds And Success

By Author: Jamie Hanson
Total Articles: 3495
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Long short mutual funds should not be evaluated in the short run to determine whether they are successful or not. Instead, investors need to understand what the long short mutual fund is and how it works in order to be able to gauge the success or failure of this particular type of investment. Basically, there are two main goals that long short mutual funds have for the investors. The first one is to try and provide investors with a return on their investment that is better than the historical return on stocks. The next goal is to try and reduce the volatility of the market by reducing the value fluctuations that many traditional stocks and mutual funds experience.

The important thing for investors to keep in mind is that with long short mutual funds there is no need to pay attention to the returns of the overall market. Putting stock in these returns would be detrimental to the investor because they are not a true reflection of long short mutual funds and their performance. Long short mutual funds are for the long haul and it's important to keep in mind that during a bull market the returns of a long short mutual fund ...
... will not be exceptional. Keep in mind that during a bull market traditional mutual funds are likely to outperform any long short mutual fund. This is not because the long short mutual fund is not successful but rather because the short positions keep returns to a minimum. However, during a bear market investors should expect their long short mutual fund to perform above and beyond their mutual fund counterparts. The reason why is because when the majority of stock prices are falling the short positions within the long short mutual fund typically perform very well.

These examples help explain how the long short mutual fund works and why it can't be compared straight up with any hedge or mutual fund. It's not an apples to apples comparison and so the results would be misleading. Investors aware of what a long short mutual fund is and the strategy involved will have no problem with less than stellar returns during a bull market because when the bear market hits the long short mutual fund will certainly take off.

Long Short Mutual Funds as part of a balanced investment portfolio can help reduce risk and increase alpha.