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In recent trading sessions, Wall Street has weighed in on the threat of a recession. The Dow fell 2.8% to post its worst week since Sept. 9, while the S&P 500 and tech-heavy Nasdaq lost 3.4% and 4%, respectively. Wall Street remains volatile, with investors trying to gauge the Fed’s direction for the economy and whether markets can make a soft landing.
We’re in “good news is bad news” territory, with strong economic numbers worrying market participants that the economy hasn’t slowed down enough. The general consensus is that the Fed will be slow on policy-tightening measures while seeing some data suggesting that policies are starting to take effect.
Without solid evidence, the Fed could continue to raise rates too quickly, risking a recession. Recently, economic data from various sectors have been inconclusive and investors are standing on the sidelines. While headline inflation remained on the high side, labor market numbers sent mixed signals.
However, November’s consumer price index (CPI) rose 0.1 percent, slower than expected for the period and significantly lower than October’s 0.4 percent increase. As the Fed interpreted this key inflation number, this again gave the market reason for a temporary recovery.
On December 14, the Fed raised interest rates by 50 bps, ending a streak of four consecutive 75 bps hikes, but warned that rate hikes would continue as the battle against inflation was not won. Fed Chairman Jerome Powell said in a press conference: “We don’t talk about this kind of collapse, this kind of collapse. We make these predictions. “I wish there was a completely painless way to restore price stability. No, and this is what we can do.”
Long story short, we’re still in a volatile market, and major upheavals could continue well into 2023. In such a situation, investors are looking for the best ways to protect their portfolio from the downside while still investing. Growing stocks. One such great strategy in the space is the long/short, which provides ways to seek profit and protection at the same time. This strategy is mainly practiced by hedge funds.
A long-term mutual fund holds and sells investments it expects to outperform the market over the next period of time, or short securities it predicts will decline. A long-short fund seeks investments with both upside and downside prospects and invests in both to maximize returns and hedge risk.
These funds use leverage, derivatives, futures or index options to maximize total returns regardless of market conditions. The hedge of short positions comes with long positions. Also, this strategy often comes with low fees and no lock-in period, although close monitoring is required.
Therefore, investors would be wise to opt for long-term equity funds in the current scenario. Mutual funds generally reduce transaction costs and diversify portfolios without the large commission fees associated with buying stocks (read more: Mutual Funds: Pros, Cons and Where to Make Money for Investors).
So we’ve selected three long-short equity funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, carry minimum initial investments of $5,000, and have low expense ratios.
AB Cap Fund, Inc. – Select AB US Long/Short Portfolio (ASLKX – Free Report) seeks long-term capital growth, and invests the majority of its net assets in equity securities of U.S. companies, short positions in such securities, and cash and U.S. cash equivalents. ASLKX focuses on securities of large and mid-cap companies, but may take long and short positions in securities of small-cap companies.
Kurt Feuerman has been ASLKX’s lead manager since December 11, 2012, and the fund’s top three holdings are 2.8% in Apple, 2.7% in Microsoft, and 2.5% in Berkshire Hathaway.
ASLKX’s 3-year and 5-year annualized returns are 6.8% and 6.6%, respectively. Net expense ratio is 1.59% compared to the category average of 1.92%. ASLKX has a Zacks Mutual Fund Rank #1. To see how this fund has performed compared to other mutual funds in the category and rated 1 and 2, please click here.
Neuberger Berman Long Short FD (NLSAX – Free report) seeks long-term capital appreciation and investment principal protection. NLSAX invests in securities of US and foreign companies. Futures, swaps, futures or options are also used to increase returns and reduce risks.
Charles C. Cantor has been the CEO of NLSAX since December 28, 2011. His three main holdings are Microsoft with 3.3%, Apple with 3.2% and Amazon with 2.8%.
The NLSAX’s 3-year and 5-year annualized returns are 5.5% and 5%, respectively. Net expense ratio is 1.64% compared to the category average of 1.92%. NLSAX has a Zacks Mutual Fund Rank #1.
Boston Partners Long/Short Research Fund (BPRRX – Free Report) seeks long-term total income by investing in undervalued stocks and short positions. Proceeds from short sales are invested in short-term financial instruments to earn returns below the federal funds rate. BPRRX invests in equity securities issued by companies of all sizes.
Eric S. Conerly has been the managing director of BPRRX since September 29, 2010, and the three main holdings for the fund are 1.3% in Nexstar Media, 1.3% in Alphabet and 1.2% in AbbVie.
BPRRX’s 3-year and 5-year annualized returns are 6.5% and 3.7%. Net expense ratio is 1.67 percent compared to the category average of 1.92 percent. BPRRX has a Zacks Mutual Fund Rank #2.
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