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Long-Short Mutual Fund Investing

An investment alternative for risky times

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This story appears in the August 2006 issue of Entrepreneur. Subscribe »

Looking for an investment that will survive--or even thrive--in a risky stock market environment? Consider the growing number of long-short offerings: mutual funds that couple investments in securities with upside potential and short selling, or betting that a stock will tumble.

Still a relatively small portion of the mutual fund market, long-short mutual funds are growing in popularity, reports Dan McNeela, associate director of funds analysis at Morningstar Inc., who attributes the bump to the success of the hedge fund industry. "The short component hedges the fund's exposure to a broad stock market decline, so the fund's performance is linked to the manager's strategy and execution of that strategy rather than how the market as a whole performs," he says.

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