In a volatile stock market, investors usually focus on a long-term strategy, which keeps them protected from concurrent ups and downs. But that is easier said than done, and adding market-neutral funds to their portfolio often bails them out in terms of hedging their risk in the prevailing market conditions.
Market-neutral funds are designed to provide returns that are relatively unaffected by the state of the overall stock market. Adding these to the portfolio should boost returns and reduce risk. They typically deliver returns by combining long and short positions in various securities.
Below, we share with you three top-ranked market-neutral funds, viz., AQR Diversified Arbitrage Fund ADANX, Gabelli ABC Fund GABCX and Calamos Market Neutral Income Fund CVSIX. Each has a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of market-neutral funds.
AQR Diversified Arbitrage Fund aspires to outperform the ICE BofAML US 3-Month Treasury Bill Index after fees while limiting its tracking risk compared to this benchmark. ADANX invests in a diverse portfolio of products such as stocks, convertible securities, debt securities, loans, warrants and derivative instruments.
AQR Diversified Arbitrage Fund has three-year annualized returns of 8%. John Eckert has been one of the fund managers of ADANX since 2022.
Gabelli ABC Fund seeks to achieve total returns that are attractive to investors in various market conditions without excessive risk of capital loss. GABCX invests in securities that the fund’s investment adviser believes provide attractive opportunities for appreciation or investment income.
Gabelli ABC Fund has three-year annualized returns of 3.6%. As of March 2023, GABCX held 162 issues, with 15.6% of its assets invested in Lennar Corporation.
Calamos Market Neutral Income Fund seeks high current income consistent with the stability of the principal. CVSIX advisors invest mainly in convertible securities and employ short selling to enhance income and hedge against market risk.
Calamos Market Neutral Income Fund has three-year annualized returns of 3.3%. CVSIX has an expense ratio of 1.22% compared with the category average of 1.79%.
To view the Zacks Rank and the past performance of all market-neutral funds, investors can click here to see the complete list of market-neutral funds.
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