For investors who are attracted to
hedge fund strategies but can't afford the extremely high
minimums or long-term financial commitment that these funds
require, market-neutral mutual funds may offer an alternative.
These funds follow a controversial investment strategy — alternately
called market-neutral, zero beta, and long/short portfolio
investing — that is designed to maintain average
annual returns that are a few points above the return on
three-month U.S. Treasury bills, regardless of whether
the market is going up or down. The goal is to provide
a measure of stability within your investment portfolio.
Market-neutral fund managers use computer programs to evaluate
and rank possible investments quantitatively,
analyzing price-to-earnings
ratios, yield, volatility, earnings growth,
and other factors. The fund then buys the stocks ranking
at the top, and sells
short the ones at the bottom.
Because meeting the fund's goals depends so heavily on
accurate assessments of future market movements, some experts
consider market-neutral funds more speculative than funds
that follow a more conventional trading approach.
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates 