Market neutral funds reduce volatility: Pengana

— 1 minute read

Market neutral strategies identifying stocks through company-specific factors provide a lower exposure to market movements, industry sectors and market capitalisation, according to Pengana Capital.

Pengana fund manager Phillip Boustridge said market-neutral funds such as the Pengana Australian Equities Market Neutral Fund identify alpha opportunities from market mispricings and inefficiencies by using fundamental factors and quantitative processes. 

Mr Boustridge told InvestorDaily the investment model used by Pengana utilises “fundamental variables or alpha-metrics” that are split into four categories including earnings, value, quality and momentum. 


“To get the pure market-neutral that we want, we have a long position and short position which will be very close to each other,” said Mr Boustridge. 

He believes this type of strategy improves diversification and reduces risk substantially since assets have a low correlation to each other.  

The weight of each stock is limited to 3.5 per cent, Mr Boustridge said, addding that the fund also limits its allocation to large bank and resources stocks as a large exposure to these types of sectors can “throw overall market performance out of whack”. 

“The thing is, if you've got a big exposure to any one sector you’re then exposed to where that sector is going,” said Mr Boustridge. 

“We have across each sector a short weight and a long weight and we have a very little net weight which means that the fund isn't going to be influenced by any one sector,” said Mr Boustridge.

He said the fund’s strategy is to pick stocks from all environments and ensure losses in the event that markets collapse are limited or avoided completely. 

“We start from a position of risk and then build the portfolio around that; this is the purest form of stock selection because we are stripping out all the systemic risk,” said Boustridge.


Market neutral funds reduce volatility: Pengana
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