Market Neutral Funds vs. Non-Directional Long/Short Funds

Описание: www.biltmorecap.com - Dr. Donald Chambers discuss the differences between market neutral funds and non-directional long/short funds. Transcript available below.

Market neutral funds have as there purpose and it's not that difficult to do is to make sure that they have the same exposure to bullish positions is too bearish positions. In other words a bullish position would be a long position where you're betting that the stock is going to go up and a bearish position is a short position where you actually make money if the stock goes down. So an equity market neutral fund, A: is focused in the equity or stock market and, B: is neutral in its exposure it doesn't matter whether the stock market goes up with the stock market goes down because their longs and shorts are balanced. Well if their longs and shorts are balanced, than how do they make any money. The answer is that make money by being skillful and being long, those particular stocks, they're gonna outperform the index and being short, those stocks that are going to underperform the index. They get this what's called double alpha, this chance to make money if they're right about which stocked are underpriced, and they're also able to make money by short selling those stocks that are overpriced.

Their performance is just going to be as good as the skill of the investment managers and some of them are skillful. Now that long shorts, that neutral strategy can be applied to other sectors as well. You can get, you can do that with regard to interest rates and others. When a long/short, when we talk about a long/short fund we’re talking about a similar product but it is not, it does not have is its goal to be balancing the long positions and the short positions. It is not ordinarily equity market neutral. In fact most to them are biased towards being long, much more than they are short and long more often than they are short.

So a typical long/short fund might have an access, might have exposure perhaps fifty percent of the stock market which means in a very strong upward marke, they’ll trail the market but they should make apositive return. In a very bad market they're gonna go down but they shouldn’t go down as much as the market. Now these long/short funds it's very hard to be very specific as to what they are, because they vary so much. But of course they're still trying to do the same thing, go long the assets that are gonna go up and go short, the assets they think are gonna underperform but they tend to be net long and a some of them have not performed well lately, it's been a difficult sector because a lot of the methods that they've been using to try to pick the winning stocks and avoid losing stocks or to short-sell losing stocks have not been working very well. And it's tough to evaluate a manager. Stock picking is a very hard thing to do,you don't want to judge somebody on the basis a very short term return history but to some are doing well and many are doing poorly. I hope that explains the difference where the biggest one just been that long short funds tend to have a net positive exposure to the stock market where properly done and equity market neutral should fund should have no correlation, no dependence on the overall direction the stock market