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.
The 10 best-rated stock
as of April 30 used so-called "market-neutral" strategies to smooth out the choppy market.
attempt to minimize volatility by taking long and short positions. These funds earned our top rating of A-plus. Each fund has at least 50% exposure to equities.
JPMorgan Market Neutral Fund
led the group, returning 5.4% a year, on average, for the past three years. The fund has gained 4.3% in the past year as the
S&P 500 Index
This fund takes short interest in mid- and large-cap stocks it considers overvalued, betting the shares will lose value. It takes long stakes in stocks viewed to be cheap.
The long positions, which add to net asset value as they rise, include
. These stocks have climbed more than 10% in the past three months, with defense contractor Northrop Grumman gaining 27%.
JPMorgan Market Neutral Fund had hoped to gain from its largest short positions as their share prices fell. However,
Johnson & Johnson
have risen as much as 12% in the past three months, dragging down the short side of the portfolio.
, the No. 2 stock fund, returned 4.2% a year, on average, in past three years by placing merger arbitrage bets involving takeovers, leveraged buyouts, tender offers and other reorganizations.
In an arbitrage transaction, investors buy shares of a company targeted for acquisition at a discount to their announced sale price. At the same time, the investor takes a short position of the acquiring company. The arbitrage strategy can lose money if the merger doesn't close.
Two of the biggest deals in the Arbitrage Fund are the $2.8 billion acquisition of
( CYCL) by
and the $47.1 billion buyout of
( SGP) by
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Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.