Market-Neutral Stock Funds Give Encore

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Nine of the 10 best-rated stock mutual funds in the most recent review are making a repeat appearance.

To put that in perspective, TheStreet.com Ratings assesses 12,595 open-end equity mutual funds, of which 3,194 are ranked "buy."

TheStreet.com Ratings' equity-fund model punishes volatility. So market-neutral funds, which use long and short positions to level market movements, prospered again.

All funds in the table below earned the highest rating of A-plus for the period ending May 31. Each has at least 50% exposure to equities.

The best-rated stock mutual fund is still the JPMorgan Market Neutral Fund(JMNAX Quote), which improved its averaged annual return over three years to 5.8%. Overvalued mid- and large-capitalization stocks are sold short to counter-balance undervalued shares from the same sector held in the portfolio.

The largest long positions intended to build to net asset value as they rise include News Corp. Class A(NWSA Quote), Northrop Grumman(NOC Quote), General Mills(GIS Quote) and Google(GOOG Quote).

The biggest short positions of the JPMorgan Market Neutral Fund are News Corp. Class B(NWS Quote), Colgate-Palmolive(CL Quote), Johnson & Johnson(JNJ Quote), Comcast(CMCSK Quote) and H.J. Heinz(HNZ Quote).