Long Short Mutual Funds

Long short mutual funds are a type of mutual fund which uses strategies that will maximize total return. These funds are less sensitive to stock market drops. They are similar to hedge funds, but are more regulated. This limits the risks taken by the average investor.

Unlike hedge funds, these funds are available to the public. They have regulations that determine how much risk a fund can take. While this limits how much the fund will make, it prevents the fund from collapsing. This makes them more appealing to try.

Some of the strategies used are leverage, derivatives, and short positions. Leverage allows the fund manager the ability to increase his stock purchases. Derivatives are contracts based on an underlying asset affected by future events. (If said event occurs, the stock contract will be worth this much.) Short positions, or short selling, is used to offset a stock that is not performing well with the hope that it can be repurchased at a lower price, and thus reduce the loss. The law limits how many derivatives and short positions that can be taken. It, also, regulates how much leverage the fund may contain.

The fund manager watches the stock market trends. When there is a downturn in the market, he will use specific strategies to keep the fund from feeling the effect. This gives a buffer to the fund, and allows the market time to recover. When there is an upturn, the manager can take advantage of it. By staying proactive, he will provide a much better return to the average investor.

Most funds have several advantages. They have a minimum investment of $1,000.00. The investor will not be locked in for a set period of time. The fees are considerably less.

In short, these mutual funds are the best of both worlds. The benefits of a hedge fund enhanced profits, while limiting the excessive risks. They have a better return than the standard mutual fund, too. Fund managers look for the best possible return on the money invested. These advantages will allow the investor to be able to weather the stock market changes, and thus grow his portfolio.