The Market Neutral Strategy: Being a Winner in Any Situation

Investing in a market neutral mutual fund has become a popular way to diversify away from the stock market. Many investors have been scared after losing significant amount of money in their investment accounts. Here are the basics of the market neutral strategy and whether or not it is worth your consideration.

Market Neutral Funds

A market mutual fund is a mutual fund that strives to provide an investment portfolio that is not affected by the stock market in any way. Therefore, when the stock market goes through a downturn, you are investment could still remain intact. However, on the other hand, your investment may not grow as much when the stock market goes through a good period. There are many different ways that a mutual fund can provide a market neutral investment portfolio. Here are a few of the potential investments that this type of fund might choose.

Long/Short Stocks

One way that a market mutual fund might choose to invest is by employing a long/short investment strategy in the stock market. This involves purchasing the same amount of short positions as long positions on particular stocks. Therefore, if the price of the stocks go up or down, it will not matter to you because you have equal positions in both.


Another popular form of investment for this type of strategy is commodities. The commodities market offers you a way to invest without being tied to the stock market. This involves investing in things like gold, silver, corn, oil, and wheat. These are all things that tend to move independently of the market. Therefore, even if the rest of the economy is down, the prices of these commodities can still be high, which could help your investment portfolio.

Foreign Currencies

The foreign currency market is another popular way to diversify away from the stock market. This market is the single largest financial market in the world with a daily volume of almost $3 trillion. With this type of strategy, you are hoping to benefit from the daily fluctuations in exchange rates between currencies. Therefore, you could invest in currencies from around the world that are uncorrelated to the stock market.

Real Estate

Many of these mutual funds will also invest in real estate. Most of the time, they will invest in commercial real estate that is very safe overall. This can provide the fund with a regular source of rental income regardless of what is going on in the stock market.

Increased Management Fees

When investing in this type of strategy, you should be aware that you will most likely have to pay higher fees than normal. This type of management requires much more attention to detail and involvement. Therefore, the fund managers expect to be paid for this extra work. This can make the management fees for this type of mutual fund as high as 3%. However, with the ability to diversify away from the stock market, the fees might be worth it.

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