Do Market-Neutral Funds Really Beat the Market?

A market-neutral does not depend on the traditional stock market for trading success. The fund focuses on avoiding links to the stock market. As an investor, you may be wondering if this type of fund investment tool holds any advantage over investing in stocks and other investments.

Long/Short Method

A long/short portfolio is achieved by investing in a number of different securities. This means that the portfolio buys an equal number of long shares and short shares, for a particular security. Regardless of which direction the market goes, the value the portfolio will be the same. The long/short method attempts to balance your securities to avoid loss.


The Forex market fund invests in foreign currency. This method is a fast moving type of investment. It allows you to diversify with different currencies and minimize risk that is associated with the domestic stock market. With this investment strategy, you will try to benefit from the currency exchange rate.


Commodities are also a very common investment tool for market-neutral funds. These funds will purchase holdings in certain commodities. For example, there are precious metals, or agricultural commodities as part of the portfolio. This provides some physical assets for the portfolio and a relatively uncorrelated form of investment.

Real Estate Market

Another way that the market-neutral fund attempts to diversify risk away from the stock market is by investing in real estate. There are many different funds that invest in physical real estate properties. Many of them will purchase commercial properties in order to provide a regular income through rent. Investing in tangible assets, like real estate, provides safety for the portfolio because the value of real estate should never be completely eliminated.

Compared to the Stock Market

As an investor, one of the most common considerations about this type of fund is whether or not it can beat the stock market. This type of fund can beat the stock market, but that does not necessarily mean that it will. Throughout history, the stock market has proven that it will increase in value. However, during certain times, the stock market value goes down. If you were to invest in a market-neutral fund during one of those times, your fund would beat the stock market. However, there are certain times that the stock market will continue to rise and outperform these neutral funds. Therefore, it is not really a question as to which one is better. It is more of an issue associated with timing.

Investment Considerations

This type of fund may not necessarily be better than investing in the stock market. However, it can be a very valuable asset to have in your portfolio. If you diversify your funds between the two types of investments, your portfolio value should remain stable and should not decrease significantly, regardless of what happens.

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