3 Market-Neutral Funds to Counter Market Volatility

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.

Below, we share with you three top-ranked market-neutral funds, viz.,Touchstone Ares Credit Opportunities Fund TMAYX, BlackRock Event Driven Equity Fund BALPX and Hussman Strategic Growth Fund HSGFX. 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.

Touchstone Ares Credit Opportunities Fund seeks capital appreciation by investing most of its net assets, along with borrowings, if any, in a wide variety of debt securities or other debt instruments. TMAYX invests in U.S. and foreign debt instruments.

Touchstone Ares Credit Opportunities Fund has a three-year annualized return of 2.7%. Seth Brufsky has been one of the fund managers of TMAYX since 2015.

BlackRock Event Driven Equity Fund seeks capital growth by investing most of its net assets in equity, derivative instruments, depository receipts, and other instruments with similar economic features. BALPX chooses to invest in event-driven strategies, especially in companies that have announced a material change.

BlackRock Event Driven Equity Fund has returned 2.9% in the past three years. As of August 2022, BALPX held 96 issues, with 80.5% of its assets invested in Total Short-term Investments.

Hussman Strategic Growth Fund typically invests most of its assets in common stocks picked by its investment advisors. HSGFX may use options and index futures, and other hedging strategies, to balance the fund’s exposure during unfavorable market conditions.

Hussman Strategic Growth Fund fund has three-year annualized returns of 9.7%. HSGFX has an expense ratio of 1.14% compared with the category average of 1.92%.

To view the Zacks Rank and the past performance of all market-neutralfunds, investors can click here to see the complete list of market-neutralfunds.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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