Which Long-Short Funds Pass a Simple Stress Test?
Here is a quick and easy way to find some interesting "alternative" options.
An investor looking to add a long-short fund to his or her portfolio needs to do extra homework. After all, the category represents a fairly eclectic group: Some strategies can be appropriate core holdings for risk-averse investors, while others are more sensitive to stock price movements and might provide less of a cushion in a downturn. Whether you're looking for a portfolio complement or an anchor, the Morningstar Premium Fund Screener can help you find some initial possibilities. But in order to understand which long-short fund is right for you, you'll have to dig deeper. Morningstar Fund Analyst Reports are a good source to help you understand how these funds have fared during various market cycles as well as what role each could play in your portfolio.
Given the wide range of strategies at play, we searched for long-short funds with five-year records that came out ahead of the category average during that time frame. And because style and management consistency should be a top priority, we made sure that the current management team was responsible for the five-year record. Lastly, it's key to limit the results to funds with below-average fees. Funds in this category tend to sport some pretty hefty expense ratios, especially those with smaller asset bases or more trading-intensive strategies.
The Premium Screener recently pulled the following funds meeting these criteria:
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.