Morningstar's John Rekenthaler turned his nose up at market-neutral funds, writing an entire column on what he perceives are their many flaws and few if any, virtues.

Market-neutral funds serve little purpose to Rekenthaler as the supposed benefit, lower risk, leads to very, very low returns. In fact, the neutral return is a negative one, with cash rates near zero and expenses on these funds averaging 1.80 percent a year. Rekenthaler said manager contribution doesn't amount for much either, as managers of conventional funds can't add several percentage points per year, no matter how well they select securities.

He pointed out one bright spot in the category, however, writing that meager-arbitrage funds, such as AdvisorShares [profile] Merger Fund and Water Island Capital [profile] Arbitrage Fund have had the group's best returns at 3.75 percent and 3.74 percent. Rekenthaler also gave a mention to Vanguard [profile], pointing out that Vanguard's Market Neutral Fund ranked eighth our of the 10 lowest cost funds of its kind over the past 10 years.

To read more, click here. 

Edited by: Casey Quinlan


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