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Long-Short Credit Funds Have Potential as Bond Diversifiers

The category has struggled in recent years, but these funds may see more opportunities amid rising rates and volatility.


Josh Charlson: Earlier this year Morningstar launched a new long-short credit category. We did so to recognize both growth in these types of funds as well as some distinctions between them and the nontraditional bond category, from which most of these funds have been reclassified.

Long-short credit funds seek to exploit mispricings in corporate debt, which may involve outright directional long and short bets, or relative value trades focusing on different securities on a company's capital structure or pair trades between the debt of two different but correlated companies, for example.

Josh Charlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.