Certain types of hedge funds are losing their magic, particularly long-short funds that hold some investments long while shorting stocks at the same time. Multi-strategy funds, meanwhile, are more popular than ever: these funds invest in multiple asset classes and are often run by less-known, more replaceable fund managers. In fact, Evestment says the assets-under-management gap between the two strategies now sits at $27 billion – its lowest level ever.
Now, that loss in love for long-short funds isn’t all that surprising. They’re meant to do well regardless of how the market changes, but the majority of those funds have slumped by more than 10% (red bar) since the start of the year. The problem with long-short funds is that they just aren’t as hedged as they used to be: a decade of low interest rates have fueled their addiction to one-way bets on high-flying stocks (yes you, tech stocks), while they only bet against a pinch of stocks in comparison.
Stock picking is becoming more and more important, as you can no longer bank on macro happenings to drive all stocks up. So if you’re looking at alternative asset classes to insulate you against the market’s decline, you might consider fully diversified multi-strategy or managed futures funds. The Unlimited HFND Multi-Strategylow-interest Return Tracker ETF (ticker: HFND, expense ratio: 1.03%) and the iM DBi Managed Futures Strategy ETF (DBMF, 0.95%) could help you bring those increasingly popular strategies into your own portfolio.
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