Skip to Content
US Videos

Long-Short Funds Not All Created Equal

Although the category performed within expectations during the recent market skid, there was a lot of variation among individual funds.

Mentioned: ,

Josh Charlson: After the stock market volatility in August, it's worth taking a look at how the long-short equity category performed. These funds take a hedged approach to equity investing by usually shorting individual stocks or using baskets of futures or indexes or even options to hedge out their long equity exposure.

So, how did these funds perform in August? You would expect, based on their beta or equity sensitivity, that they should have reduced downside compared with the S&P 500. In fact, they performed within expectations. When we look at the stretch from Aug. 17 through Aug. 24, in which the S&P 500 was down 9.4%, funds in this category, on average, were down about 4.8%. That's within expectations. However, you have to be aware that there is a lot of variation in the category--both in terms of the approaches that fund managers take as well as the beta or exposure of the managers to the stock market.

Josh Charlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.