The Successful Long Short Mutual Fund

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

Since the long short mutual 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 mutual fund won't perform well during a bull market and will earn exceptionally well during a bear market. Since a long short mutual 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 mutual fund. Not only is it misleading, but it can be quite disheartening at times despite the fact that the long short mutual fund may be performing exceptionally well.

Long short mutual funds are still relatively ...
... new in the investment world simply because it was impossible to have a long short mutual fund before 1997 due to securities laws. However, those laws have sense been amended and the long short mutual 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 mutual fund will perform due to its higher costs, higher than normal turnover, and high pay to long short mutual fund managers.

Keep in mind, too, that investors don't usually pay much attention to the long short mutual 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, long term it has still not been determined exactly how long short mutual funds will perform.

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