By: Julia Aidan
Submitted: 2009-10-06 10:21:30 | Word Count: 393
Long short funds should not be evaluated in the short run to determine whether they are successful or not. Instead, investors need to understand what the long short fund is and how it works in order to be able to gauge the success or failure of this particular type of investment. Basically, there are two main goals that long short funds have for the investors. The first one is to try and provide investors with a return on their investment that is better than the historical return on stocks. The next goal is to try and reduce the volatility of the market by reducing the value fluctuations that many traditional stocks and mutual funds experience.
The important thing for investors to keep in mind is that with long short funds there is no need to pay attention to the returns of the overall market. Putting stock in these returns would be detrimental to the investor because they are not a true reflection of long short funds and their performance. Long short funds are long-term investments and it's important to keep in mind that during a bull market the returns of a long short fund will not be exceptional. Keep in mind that during a bull market traditional mutual funds are likely to outperform any long short fund. This is not because the long short fund is unsuccessful but rather because the short positions can drag on returns. However, during a bear market investors should expect their long short fund to perform above and beyond their mutual fund counterparts. The reason why is because when the majority of stock prices are falling the short positions within the long short fund typically perform very well.
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These examples help explain how the long short fund works and why it can't be compared straight up with any hedge or mutual fund. It's not an apples to apples comparison and so the results would be misleading. Investors aware of what a long short fund is and the strategy involved will have no problem with less than stellar returns during a bull market because when the bear market hits the long short fund will certainly take off.
Author Resource:-Long-Short mutual funds are offered by Bull Path Capital Management, a New York based registered equity asset management firm specializing in long-short strategies.
