Key Takeaways
- • Long/short funds, offered as mutual funds, ETFs, or hedge funds, take long positions in stocks expected to rise and short positions in stocks expected to fall, seeking to profit from both undervalued and overvalued securities.
- • According to the article, the most common long/short structure is 130/30, with 130% of assets long and 30% short, netting to 100% market exposure.
- • Expense ratios for long/short funds listed in the FINRA database are cited at 1.10% for ETFs and 1.50% to over 2.00% for mutual funds, versus 0.40% to 0.44% for all equity mutual funds.
- • The article cites the AQR Long-Short Equity Fund (QLEIX) with annualized returns of 27.93%, 21.65%, and 11.90% over three, five, and ten years through May 29, 2026, and an expense ratio of 5.78%.
- • The article notes that short selling carries unlimited theoretical loss potential, whereas a long position's loss is limited to 100% of invested capital.
Summary
An Investopedia explainer outlines how long/short funds operate, describing them as a category of mutual, hedge, or exchange-traded funds that hold both long and short positions. The article states that these funds can use leverage, derivatives, and short selling, strategies initially popularized by hedge funds, and that they seek to balance potential returns against risk through active management.
According to the article, long/short funds carry higher expense ratios than standard equity funds due to active management and analysis. As of 2026, the article cites average expense ratios of 1.10% for long/short ETFs and 1.50% to over 2.00% for long/short mutual funds, compared with 0.40% to 0.44% for all equity mutual funds. The article also notes that many of these funds require larger minimum investments and can impose both front-end and back-end loads. Compared with long/short hedge funds, the publication says the mutual fund and ETF versions generally offer higher liquidity, no lock-in periods, and lower fees, though they often carry higher expense ratios and lower liquidity than other public funds.
The article describes the 130/30 strategy as the most common long/short structure. In this approach, a manager ranks stocks using quantitative criteria such as total return, risk-adjusted performance, or relative strength, takes 100% long exposure in top-ranked stocks, and shorts up to 30% of the portfolio in bottom-ranked stocks. Proceeds from the short sales are reinvested into long positions, netting to 100% net market exposure.
Two case studies illustrate divergent approaches. The AQR Long-Short Equity Fund (QLEIX) invests globally across sectors and, per the article, posted annualized total returns of 27.93%, 21.65%, and 11.90% over three, five, and ten years through May 29, 2026, with an expense ratio of 5.78%. The Invesco S&P 500 Downside Hedged ETF (PHDG) is actively managed to seek positive returns in both rising and falling markets. It allocates across components of the S&P 500 Dynamic VEQTOR Index, which combines S&P 500 equity, a volatility hedge tied to S&P 500 VIX short-term futures, and cash. Its expense ratio was 0.44% in June 2026, with three-, five-, and ten-year returns of 9.21%, 4.77%, and 7%, respectively, according to the article.
The article also distinguishes long/short funds from related strategies, including market-neutral funds, which seek to profit from price differences between matched stocks while minimizing overall market exposure, and pairs trading, which takes offsetting positions in closely related stocks. It concludes that long/short funds may offer higher returns but carry higher volatility, fees, and entry costs, and that short positions present potentially unlimited losses.
According to the article, long/short funds carry higher expense ratios than standard equity funds due to active management and analysis. As of 2026, the article cites average expense ratios of 1.10% for long/short ETFs and 1.50% to over 2.00% for long/short mutual funds, compared with 0.40% to 0.44% for all equity mutual funds. The article also notes that many of these funds require larger minimum investments and can impose both front-end and back-end loads. Compared with long/short hedge funds, the publication says the mutual fund and ETF versions generally offer higher liquidity, no lock-in periods, and lower fees, though they often carry higher expense ratios and lower liquidity than other public funds.
The article describes the 130/30 strategy as the most common long/short structure. In this approach, a manager ranks stocks using quantitative criteria such as total return, risk-adjusted performance, or relative strength, takes 100% long exposure in top-ranked stocks, and shorts up to 30% of the portfolio in bottom-ranked stocks. Proceeds from the short sales are reinvested into long positions, netting to 100% net market exposure.
Two case studies illustrate divergent approaches. The AQR Long-Short Equity Fund (QLEIX) invests globally across sectors and, per the article, posted annualized total returns of 27.93%, 21.65%, and 11.90% over three, five, and ten years through May 29, 2026, with an expense ratio of 5.78%. The Invesco S&P 500 Downside Hedged ETF (PHDG) is actively managed to seek positive returns in both rising and falling markets. It allocates across components of the S&P 500 Dynamic VEQTOR Index, which combines S&P 500 equity, a volatility hedge tied to S&P 500 VIX short-term futures, and cash. Its expense ratio was 0.44% in June 2026, with three-, five-, and ten-year returns of 9.21%, 4.77%, and 7%, respectively, according to the article.
The article also distinguishes long/short funds from related strategies, including market-neutral funds, which seek to profit from price differences between matched stocks while minimizing overall market exposure, and pairs trading, which takes offsetting positions in closely related stocks. It concludes that long/short funds may offer higher returns but carry higher volatility, fees, and entry costs, and that short positions present potentially unlimited losses.
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