A market neutral fund has a single goal: to earn above the market returns with much lower risks than other funds. This goal aims for steady and continuous returns on investments hopefully at about three to six percentage points over Treasury bills, after fees, of course. Some of the market neutral funds may even seem to promise twice the returns; however, the risk is also proportionately elevated. Overall, the market neutral fund was created to deliver positive returns despite fluctuations within the stock markets.
There are different privately owned companies, such as James Market Neutral Fund and TFS Market Neutral Fund, which invest in common stocks that their advisors think are undervalued and will appreciate whereas they will sell short common stocks which they do believe are overvalued and will most probably depreciate. These companies will use market-neutral strategies such as shorting sectors, merger arbitrage, and, also, use matching long and short positions in differing stocks. There is no single method these organizations use since they are constantly assessing the stock markets for the optimum results in increasing returns and lessening risks. However, the advisors cannot always accurately forecast the market risk for the market neutral fund.
There exists some controversy concerning the market neutral fund since some market advisors believe the market fund is too risky for the average shareholder whereas others believe the expected returns on investments outweigh fairly conservative risks. Whatever the view, both parties believe the market neutral fund is not for the individual who wants no surprises and, thus, little or no risks whatsoever to his investments.
When some individuals consider the risks manageable, they may opt to invest in a market neutral fund. They are optimistic that the fund will bring them positive returns on their investments. Once deciding on this course, they choose the fund group in which to invest. They must invest a minimum amount in the market neutral fund. Some companies require the minimum as two thousand dollars for individuals, five hundred dollars for retirement funds, and fifty dollars for an automatic investment plan.
The market neutral fund is not a new approach, either, in the stock market. This fund was first established in 1949 when the investment partnership of A.W. Jones decided to take the market neutral fund tactic. The A.W. Jones partnership took that first step and for over sixty years, the market neutral fund still remains. It continues focusing on its goal of producing higher returns and lower risks by picking bullish stocks which promise positive returns with an equal number of diverse bearish ones, which seem to promise a loss.