market-neutral

During the July-August stock slide, alternative-investing categories such as currency funds, market-neutral funds and managed-futures portfolios eked out very small losses compared with the overall decline in the Standard & Poor's 500-stock index, according to data from fund research company Morningstar Inc. Other alternative categories, such as long/short stock funds and funds that combine multiple alternative strategies, suffered declines, but their average returns still outperformed those of benchmark indexes as well.

Easing the Sting of Falling Stock Prices Javier Espinoza 2011

While long/short and multi-alternative funds are more vulnerable to stock-market downturns than, say, market-neutral funds, they also have more upside potential when stocks trend higher.

Easing the Sting of Falling Stock Prices Javier Espinoza 2011

Over the past five years, market-neutral funds earned an annualized return of 0.44%, compared with the S&P 500's 0.9% decline.

Do 'Alternative' Funds Deliver? Anne Tergesen 2011

The average returns for the following alternative categories during this period are all negative, but they are down less than the benchmark: market-neutral funds, down 0.3%; currency, down 3.2%; multi-alternative, down 3.9%; managed futures, down 4.7%; and long/short, down 6.9%.

Easing the Sting of Falling Stock Prices Javier Espinoza 2011

Among market-neutral funds, which buy some stocks and sell others short, the average loss was 2.2%.

Easing the Sting of Falling Stock Prices Javier Espinoza 2011

While market-neutral and long-short funds still dominate the alternative-funds category, it has expanded in recent years to include currency funds as well as managed-futures funds, which can invest in futures contracts in a variety of markets; bear-market funds, which profit when markets decline; and multi-alternative funds, which use a variety of strategies.

Do 'Alternative' Funds Deliver? Anne Tergesen 2011

Even so, investors may have been better off investing in cash than in market-neutral funds, many of which seek to deliver a set amount—often two to five percentage points—above the return on cash.

Do 'Alternative' Funds Deliver? Anne Tergesen 2011

Currency funds fell a fraction and market-neutral funds fell 1.9%.

A Main St. Take on Hedge Funds Brendan Conway 2011

According to Morningstar, the average expense ratio for long-short funds is 2.11% and for market-neutral funds is 1.79% of assets per year, versus 1.36% for U.S. equity funds and 1% for U.S. bond funds.

Do 'Alternative' Funds Deliver? Anne Tergesen 2011

Whether you're talking about a long/short or market-neutral fund, the selection of which individual stocks to buy and which ones to short is critical, says Gene Podsiadlo, director of mutual funds at Wasatch Advisors in Salt Lake City.

Easing the Sting of Falling Stock Prices Javier Espinoza 2011