Market-neutral mutual funds aim to generate steady returns by balancing long and short positions, reducing exposure to overall market movements. Their core objective is consistency rather than outperforming during strong bull phases.
These funds use strategies such as pair trading, arbitrage and factor-based models to offset market risk. Performance depends largely on stock selection skill and execution efficiency, not market direction.
Market-neutral funds appeal to investors seeking diversification and lower volatility. However, returns may be modest, and costs can be higher, making them more suitable as a stabilizing portfolio component than a growth driver.
Below, we share with you three top-ranked market-neutral funds, viz., Calamos Market Neutral Income CVSIX, GatewayGATEX and Hussman Strategic Market Cycle FundHSGFX. Each has a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of market-neutral funds.
Calamos Market Neutral Incomeinvests in equities, convertible securities and high-yield bonds, uses short selling, swaps and options to enhance income and hedge risk. It typically holds convertibles with 2-to-10 year maturities.
Calamos Market Neutral Income has a three-year annualized return of 7.6%. John P. Calamos has been one of the fund managers of CVSIX since 1990.
Gateway invests in diversified equities and uses option strategies to reduce volatility, generate steady income and enhance returns, while limiting gains during strong market advances.
Gateway has returned 13.4% in the past three years. As of September 2025, GATEX held 187 issues, with 8.2% of its assets invested in Nvidia.
Hussman Strategic Market Cycle Fund typically invests in advisor-selected stocks, holding minimal cash, and may use options, index futures and other hedges to limit portfolio exposure during unfavorable market conditions.
Hussman Strategic Market Cycle Fund has five-year annualized returns of 0.4%. HSGFX has an expense ratio of 1.15%.
To view the Zacks Rank and the past performance of all market-neutralfunds, investors can click here to see the complete list of market neutral funds.
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This article originally published on Zacks Investment Research (zacks.com).
