The New Long Short Mutual Fund

The Long-Short Fund, which is still a baby in terms of the overall market, appears to be a rising star that could potentially be the saving grace of investors. Since its inception it has attracted tens of millions of dollars in investments. Of course, with the $10,000 price tag of the initial investment it's a sure bet that mostly experienced and market savvy investors will be investing their money in this fund. That, by the way, is actually part of the fund's overall strategy because it's important to have knowledgeable and experienced investors. Due to asset allocation the volatility of the fund is reduced and performance is improved. Exposure is hedged and limited to 10-20% for investors.

The Long-Short Fund is not a fund that relies on NASDAQ or the S&P 500 to be successful. Instead, it's a fund in a class of its own working to offer its investors absolute returns. It is believed the long short mutual fund investment model will become wildly successful and explode in both popularity and growth over the next decade.

The strategy used by the Long-Short Fund is not market neutral, although it might sound that way at first to newcomers. It is in fact a fund that includes both short and long positions to provide a balance to the investment and to reduce the risk of loss. The goal is that when the long investments are losing the short investments will be gaining and vice versa. The investments will be diversified and include many sectors. The short side will have 5-15 more stocks than the long side, which assists in creating a balance. The exposure of the fund on the short side will be quite low while exposure on the long side will be higher. Nevertheless, the long and short stocks will work together to provide returns despite the market conditions.

The Long short mutual Fund strategy is to limit short sale losses to 10% and to 20% on longs. Annually, the fund's goal is to return 20%. In a market that appears to continue its volatility over the coming decades investments like the Long short mutual Fund could be just the right medicine for investors.

By: Jamie Hanson

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Long Short Mutual Funds as part of a balanced investment portfolio can help reduce risk and increase alpha.