Skip to Content
US Videos

Hedging Hurt Long-Short Equity Funds in 2016

While the average long-short fund returned about 2% last year, specific fund returns ranged from a 25% gain at the top to a 17% loss at the bottom.

Mentioned: , , ,

Josh Charlson: 2016 was a tough year for many funds in Morningstar's long-short equity category. It's not surprising that funds that engage in hedging, or shorting, as long-short equity funds do, would lag long-only funds in a year when many equity markets boomed. But the average long-short equity fund gained only 2.3%--far less than one might expect, considering that the S&P 500 returned around 12% and the typical long-short equity fund averages around 50% exposure to the stock market.

However, the averages mask a wide range of returns in the category. Long-short equity returns ranged from 25% at the top end to negative 17.6% at the bottom--a huge spread. Part of the disparity results from the fact that betas, or market exposures, can range widely in the category, and on top of that many managers have the flexibility to move that exposure around actively during the year. 

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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.