Market-Neutral Category Handbook For more

Josh Charney, Alternative Investments Analyst

The world of alternatives encompasses a daunting list of funds, many of which attempt to offer diversification for the traditional portfolio. One of the only strategies that actually exhibits low correlation, and therefore true diversification, by mandate, however, is market-neutral. Unlike long-short strategies, which typically have net long exposure to equities, market-neutral funds have near zero stock market exposures. Morningstar considers a fund market-neutral if its equity beta is between negative 0.3 and 0.3. Market-neutral funds employ an array of different trading strategies, but the theory driving their returns is fairly universal.

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