Volatility continues on Wall Street due to various unwelcoming domestic banking and global news. The downgrade of several U.S. banks by Moody’s has sparked fear among investors. Also, the unexpected slowdown of the Chinese economy poses a threat, suggesting a global slowdown.
Amid all these, investors are keenly waiting for July’s Consumer Price Index data to be released later today. The street expected the inflation numbers to be 3.3% over the past year, slightly higher than June’s 3% annual gain. Higher than Fed expectation of 2% inflation and an already tight labor market suggest further rate hikes are also a possibility. Such moves could negatively impact the health of U.S. banking and the economy.
The hawkish monetary policy stance adopted by the Federal Reserve to counter inflation has pushed borrowing costs to decades higher, resulting in a slowdown in loan demand for businesses and consumers. Investors witnessed the collapse of Silicon Valley and Signature Bank earlier this year, forcing the Federal agencies to take emergency measures to boost confidence.
China’s economy, on the other hand, has performed weaker than expected. Exports fell by 14.5% and imports by 12.4% in July from a year ago due to low demand. As this country is considered the global manufacturing hub, weakness in the Chinese economy also raises the possibility of an impending global recession.
Considering the current situation in the U.S. stock market, funds with a long-short strategy are particularly relevant for protecting one’s invested capital. This type of fund provides stable returns at a relatively lower level of risk, irrespective of market direction.
Long-short funds are designed to adopt a more precise approach by shorting 50% of the assets and holding 50% long. This method seeks to identify pairs of assets that have related price movements. The funds go long on the outperforming asset and short on the underperformers. Moreover, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases.
Thus, we have selected three such long-short mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio compared to the category average.
Easterly Snow Capital Long/Short Opportunity Fund SNOAX invests most of its net assets in domestic common stocks, preferred stocks, convertible securities, and exchange-traded funds with exposure in equity securities irrespective of their market capitalization. SNOAX advisors also invest a small portion of their net assets directly or indirectly in foreign securities.
Anne S. Wickland has been the lead manager of SNOAX since Sep 29, 2016, and most of the fund’s exposure is in companies such as JPMorgan Chase (2.8%), Wells Fargo (2.6%), and Hartford Financial (2.5%) as of 2/28/2023.
SNOAX’s three-year and five-year annualized returns are 15.7% and 7.1%, respectively. SNOAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.58% compared with the category average of 1.92%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Boston Partners Long/Short Research BPRRX invests in long positions for undervalued stocks and short positions for overvalued stocks as identified by its fund managers. BPRRX advisors invest in both long and short equity or convertible securities of companies irrespective of their company size.
Joseph F. Feeney has been the lead manager of BPRRX since Sep 29, 2010, and most of the fund’s exposure is in companies such as Nexstar Media Group (1.3%), Abbvie (1.2%) and The Hershey (1.2%) as of 2/28/2023.
BPRRX’s three-year and five-year annualized returns are 13.2% and 4.2%, respectively. BPRRX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.64% compared with the category average of 1.92%.
Neuberger Berman Long Short Fund NLSAX invests most of its net assets in long or short positions in common, preferred equity securities, exchange-traded funds, fixed-income securities, and restricted securities in the global securities markets. NLSAX advisors also invest in derivatives, futures, swaps, forwards, or options of domestic and foreign companies to manage their risk and returns.
Marc Regenbaum has been the lead manager of NLSAX since Feb 27, 2017, and most of the fund’s exposure is in companies such as Microsoft (4.0%), Apple (2.9%) and Fanatics (2.6%) as of 4/30/2023.
NLSAX’s three-year and five-year annualized returns are 6.4% and 6.1%, respectively. NLSAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.65% compared with the category average of 1.92%.
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