These are funds do not hedge fully. Managers of directional funds maintain some exposure to the market, but they try to get higher-than-expected returns for the amount of risk that is being taken. As directional funds maintain some exposure to the stock market, they are sometimes called ‘beta funds’ and are said to have a stock-like return. A fund’s returns may be unstable year to year, but they’re likely to be higher over the long run than the returns on an absolute-return fund.
A directional fund’s return may be disproportionately larger than its risk, but the risk is still there. These funds can also swing wildly, giving a big return some years and plummeting big in others. Longer-term investors may not mind as long as the upward trend is positive.
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