Yahoo Finance 3 Market Neutral Funds to Counter Market Volatility
In a volatile stock market, investors usually focus on a long-term strategy, which keeps them protected from concurrent ups and downs. But that is easier said than done, and adding market-neutral funds to their portfolio often bails them out in terms of hedging risks in prevailing market conditions.
Market-neutral funds are designed to provide returns that are relatively unaffected by the state of the overall stock market. Adding these to the portfolio should boost returns and reduce risk. They typically deliver returns by combining long and short positions in various securities.
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.
Below, we share with you three top-ranked market-neutral funds, viz., AQR Diversified Arbitrage Fund ADANX, Gabelli ABC Fund GABCX and Calamos Market Neutral Income Fund CVSIX. Each has a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of market-neutral funds.
AQR Diversified Arbitrage Fund seeks long-term positive returns by investing in well-diversified portfolio equity, convertible securities, debt securities, loans, warrants, derivative instruments like futures, forwards, and options, along with credit default swaps and credit default index swaps. ADANX advisors seek to outperform the ICE BofA ML US 3-Month Treasury Bill Index after expenses.
AQR Diversified Arbitrage Fund has three-year annualized returns of 0.3%. John Eckert has been one of the fund managers of ADANX since 2022.
Gabelli ABC Fund seeks to achieve total returns that are attractive to investors in various market conditions without excessive risk of capital loss. GABCX chooses to invest primarily in securities that the fund's investment adviser believes provide attractive opportunities for appreciation or investment income.
Gabelli ABC Fund has a three-year annualized return of 3%. GABCX has an expense ratio of 0.84%.
Calamos Market Neutral Income Fund seeks high current income in line with its principles 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 swaps to enhance income and hedge against market risk.
Calamos Market Neutral Income Fund has a three-year annualized return of 3.1%. As of October 2023, CVSIX held 518 issues, with 3.5% of its assets invested in Apple Inc.
To view the Zacks Rank and the past performance of all market-neutral funds, investors can click here to see the complete list of market-neutral funds.
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