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Long/Short Funds

Long/Short Funds

Good article in the WSJ about Long/Short mutual funds that attempt to reduce risk by allowing short exposure. 

Stock Funds For the Timid

While I like the idea of these types of funds, investors need to do their homework as with anything there will be some great, good, bad, and awful ones.  The article talks a lot about higher fees which to me isn’t a big deal as long as you get what you pay for.  Most traditional mutual funds are closet indexers so paying them 1% or more has never made any sense to me, you can just buy the index instead for much less.  However, if a fund can avoid some or all of the big losses in the market than it is worth paying much more for. 

The bigger issue is that the best long/short stock pickers will almost always gravitate towards the hedge fund space because that is where the money is.  You need extra skill here as shorting is much more difficult than just mirroring your benchmark.  Of course we still think tactical is the way to go but a good long/short fund or two can definitely do better than traditional style box mutual funds.

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