U.S. stock markets have been volatile for a pretty long stretch. Given the prevailing economic conditions, a market-neutral fund is particularly relevant for protecting one’s invested capital. This type of fund is designed to provide stable returns at relatively lower levels of risk regardless of market direction.
Market-neutral funds aim to adopt a precision approach by shorting 50% of their assets and holding 50% long. This method seeks to identify pairs of assets whose price movements are related. The fund goes long on the outperforming asset and shorts the underperformer.
Say, for instance, you take a $1 million long position in Pfizer and a $1 million short position in Wyeth, both large pharmaceutical companies. If pharmaceutical stocks fall, you will lose because of your long position in Pfizer but gain from your short position in Wyeth.
Hussman Strategic Growth Fund typically invests most of its assets in common stocks recommended by its investment advisors. HSGFX may employ options and index futures, and other hedging strategies, to balance the fund’s exposure during unfavorable market conditions.
Hussman Strategic Growth Fund has three-year annualized returns of 4.6%. HSGFX has an expense ratio of 1.13% compared with the category average of 1.92%.
BlackRock Event Driven Equity Fund invests in equity securities, derivative instruments, and depositary receipts. BALPX chooses to invest in event-driven strategies, especially in companies that have announced a material change.
BlackRock Event Driven Equity Fund has a three-year annualized return of 3.1%. Mark McKenna has been one of the fund managers of BALPX since 2015.
Calamos Market Neutral Income Fund seeks to achieve high current income by investing in equities, convertible securities of U.S. companies irrespective of their market capitalization and options and high-yield, fixed-income securities. CVSIX advisors also use short selling and swap to enhance income and hedge against market risk.
Calamos Market Neutral Income Fund has a three-year annualized return of 3.2%. As of January 2023, CVSIX held 685 issues, with 3.2% of its assets invested in APPLE.
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3 Market Neutral Funds to Counter Market Volatility
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