These Are the Top Ten Market Neutral Mutual Funds

March 26, 2021

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By Aman Jain. Originally published at ValueWalk.

A market neutral strategy helps investors and investment managers to make a profit from both a rise and drop in prices in one or more markets. Also, investors and investment managers following this strategy stay away from some specific types of market risk. A portfolio based on a market neutral strategy attempts to maintain low correlation to the market fluctuations. Such a strategy is popular among hedge and mutual fund managers. In this article, we will take a look at the top ten market neutral mutual funds.

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Top Market Neutral Mutual Funds

We have used the one year return data to come up with our list of the top ten market neutral mutual funds. Following are the top ten market neutral mutual funds:

Arbitrage Fund (ARGAX, 6%)

The objective of the fund is to attain capital growth by using merger arbitrage. ARGAX invests a minimum of 80% of its net assets in equity of companies involved in a major corporate event, such as spin-offs, liquidations, mergers, tender offers and more. The fund has a net expense ratio of 1.63% and has $1.48 billion in assets. ARGAX has returned 3.88% over the past three years and 3.47% over the past five years.

Vivaldi Merger Arbitrage Fund (VARAX, 7%)

The objective of the fund is to earn returns that are largely uncorrelated with the general stock market returns, as well as capital appreciation. VARAX mainly invests in equity securities and the derivatives of companies involved in a major corporate event. The fund has a net expense ratio of 2.4% and has $572.61 million in assets. VARAX has returned 4.73% over the past three years and 3.64% over the past five years.

Westwood Alternative Income Fund (WMNAX, 8%)

The objective of the fund is to earn absolute returns in the form of current income and capital appreciation. WMNAX primarily invests in income producing convertible securities and maintains a portfolio having low volatility and low correlation with equity and fixed income markets. The fund has a net expense ratio of 1.15% and has $137.24 million in assets. HMEAX has returned 5.46% over the past three years and 4.96% over the past five years.

NexPoint Merger Arbitrage Fund (HMEAX, 8%)

The objective of the fund is to earn positive absolute returns for the investors. HMEAX generally invests a minimum of 80% in securities of the companies involved in publicly-announced mergers or the ones that the fund believes could be involved in merger transactions. The fund has a net expense ratio of 2.76% and has $77.98 million in assets. HMEAX has returned 7.48% over the past three years.

Absolute Convertible Arbitrage Fund (ARBIX, 9%)

The objective of the fund is to earn positive absolute returns over the long term. ARBIX mainly invests in convertible securities (debt securities or preferred stocks) from U.S. and foreign companies. The fund has a net expense ratio of 1.59% and has $382.36 million in assets. ARBIX has returned 6.01% over the past three years.

American Beacon SSI Alternative Income (PSCIX, 11%)

The objective of the fund is to make income and absolute returns. PSCIX makes use of the convertible arbitrage strategy and invests in convertible preferred securities, common stock of companies issuing convertible securities, and establishing short positions, or hedges. The fund has a net expense ratio of 2.27% and has $259.46 million in assets. PSCIX has returned 5.99% over the past three years, and 6.05% over the past five years.

Otter Creek Long/Short Opportunity Fund (OTTRX, 12%)

The objective of the fund is long-term capital appreciation. OTTRX uses a long/short strategy, and takes long positions in undervalued and short positions in overvalued securities. The fund has a net expense ratio of 1.77% and has $134.35 million in assets. OTTRX has returned 4.25% over the past three years, and 1.59% over the past five years.

Water Island Event-Driven Fund (AGEAX, 14%)

The objective of the fund is to achieve capital growth. AGEAX primarily invests in equity, debt and debt-like instruments of the companies whose share price could be impacted by a corporate event, such as mergers, acquisitions, asset sales and more. The fund has a net expense ratio of 1.83% and has $124.36 million in assets. AGEAX has returned 5.72% over the past three years, and 5.36% over the past five years.

Hussman Strategic Growth Fund (HSGFX, 30%)

The objective of the fund is long-term capital appreciation, as well as protection of capital when the market is unfavorable. HSGFX usually invests in stocks, but when the market conditions are unfavorable, the fund manager may invest in options and index futures. The fund has a net expense ratio of 1.15% and has $368.12 million in assets. HSGFX has returned -3.56% over the past three years, and 4.23% over the past five years.

AQR Diversified Arbitrage Fund (ADAIX, 31%)

The objective of ADAIX is to outperform the ICE BofAML US 3-Month Treasury Bill Index along with maintaining a specific risk level. ADAIX invests in swaps, convertible securities, options, equities, loans, warrants, futures contracts, forwards and more. The fund has a net expense ratio of 1.96% and has $1.06 billion in assets. ADAIX has returned 13.63% over the past three years, and 11.17% over the past five years.