Although investors have shown their love for alternative mutual funds in recent years, one Morningstar analyst says these fund have missed the boat when it comes to rallies.

The recent period of high volatility "is precisely the market environment when you would want these funds," according to Nadia Papagiannis, an analyst at investment researcher Morningstar. But she calls the funds' three- and five-year track records "disappointing." For example, from Jan. 1 to July 22—a period in which the S&P 500 jumped 8.1 percent—the average long-short fund gained just 1.25 percent.

Jonathan Lamensdorf, PM of the Highland Long/Short Equity Fund[see profile], offers that long-short funds have performed as they should. This breed is "not designed to slaughter the S&P 500," he told the pub. 

Edited by: Hung Tran


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