Top 3 Long Short Equity Mutual Funds - Best of Funds

Equity long short funds seek to gain from both winning and losing stocks, irrespective of the current market climate. These funds utilize conventional methods to identify stocks which are either under or overvalued, aiming to profit from shorting the overvalued stocks. In addition, such a fund holds more short positions in a rising market and long positions in a falling market and seeks to profit from both situations. At the same time, this strategy ensures lower downside risk. These funds therefore make an ideal choice during periods of high volatility, such as the one we are passing through currently.

Below we will share with you 3 top rated long short equity mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all long short equity funds, then click here.

Hancock Horizon Quantitative Long/Short A (HHQAX) seeks capital growth over the long term. The fund invests in long and short positions of publicly traded domestic shares which are part of the S&P Composite 1500 index. Under normal circumstances, the fund's long exposure varies between 85-115% of its assets and 0-35% of its assets is utilized to hold short positions. This long short equity mutual fund returned 25.06% in the last one year period.

Paula Chastain is the fund manager and has managed this long short equity mutual fund since 2008.

Old Mutual Analytic US Long/Short A (OADEX) utilizes the majority of its assets to purchase equity securities issued by domestic large and mid-cap companies. The fund takes long and short positions in publicly traded equity securities. It utilizes 120% of its assets to invest in long positions and 20% to take short positions. This long short equity mutual fund returned 19.99% in the last one year period.

The long short equity mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.47% against a category average of 1.14%.

Diamond Hill Long-Short A (DIAMX) seeks capital appreciation over the long term. The fund invests heavily in common stocks of domestic companies that are attractively priced relative to their intrinsic value. It also sells securities short if the fund managers believe that the price of a specific security is likely to decline. The long short equity mutual fund has a ten year annualized return of 4.68%.

As of July 2011, this long short equity mutual fund held 69 issues, with 14.52% of its total assets invested in Jpmorgan 100% Us Treasury Capital Shrs.

To view the Zacks Rank and past performance of all long short mutual funds, then click here.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds.