Please Explain, page-2

ALF is not actually market neutral, it is long/short directional. They could take a bullish or bearish stance, but of late they have been fairly close to neutral - which makes sense in the interests of preserving capital in the presence of high valuations. The latest exposure showed 100.2% long exposure and 94.8% short exposure (https://www.asx.com.au/asxpdf/20180112/pdf/43qskvvmc426bq.pdf).

People keep saying it will "do well" in a bear market. That's bull. It may "outperform", if by outperform you mean it won't fall dramatically when long-only funds do. In that sense it can be seen as portfolio insurance, in that it's not exactly correlated to the general market and is unlikely to experience sudden dramatic falls. But the only way they'll actually make money is if they position the gross exposure in the correct direction and/or if their stock picking abilities allow the longs to outperform the shorts. Given their largely neutral stance, the latter is of utmost importance. The problem is that these days their stock picking seems to have fallen flat and the fund is moving somewhere between sideways and slightly down. It's also worth noting that shorting is inherently expensive -- for example, they need to pay dividends on borrowed stock, etc.

AEG has been doing okay lately and they are a long/short fund, so they're doing a better job at stock picking. It will be interesting to see both funds report their NTA after this month's return to some volatility. But I maintain that it really is more about their stock picking than whether they do well in a rising or falling market.