Investors looking for a safe place to invest have turned increasingly to long-short funds, which can buy stocks or bet against them by selling them short. But, according to Marta Norton at Morningstar, these types of funds require just as much careful analysis as any other fund.
Many of these funds rely on complicated strategies and hold exotic securities, Norton says. A year isn’t long enough to measure how these funds will hold up, and they’ve earned a wide range of returns. A typical long-short fund may be only three years old, so most have yet to prove their long-term merit.