While Indian equity markets saw sharp declines in September, specialized hybrid long-short funds posted an average return of 0.71%. However, the category’s performance was heavily skewed by a few outliers, highlighting that picking the right fund manager remains more important than selecting the category itself.
During September 2026, a month marked by significant turbulence in the Indian equity markets, hybrid long-short funds provided a rare pocket of stability for investors. While benchmark indices like the Nifty 50 and Nifty Midcap 150 fell by 6.06% and 7.09% respectively, this specialized investment category managed an average return of 0.71%. This resilience stood in contrast to broader equity long-short strategies, which generally faced sharper declines, often losing approximately 4% during the same period.
However, a closer look at the data suggests that investors should be cautious before viewing this category as a uniform success story. The category-wide average was heavily influenced by a few high-performing outliers, masking the reality that most funds struggled to generate profits. Data shows the median return for these funds was actually -0.10%, meaning that more than half of the funds tracked did not finish the month in positive territory. In fact, only five of the 11 funds managed to deliver gains.
The performance gap between the top and bottom funds was substantial. The qSIF Hybrid fund, managed by Quant Asset Management, was the primary driver of the category’s positive average, recording a monthly gain of 16.91%. This result significantly distanced the fund from its peers, pushing its inception-to-date returns to 29.83%. Other funds such as Arudha Hybrid, Infinity Hybrid, Prism Hybrid, and RedHex Hybrid also avoided losses, though their gains were far more modest, ranging between 0.21% and 0.53%.
How These Funds Mitigate Risk
These funds are designed to be different from traditional mutual funds. They typically use a combination of three tools: holding stocks for growth, taking 'short' positions (bets that specific stocks or the market will fall) to hedge against declines, and allocating a portion of capital to debt instruments. This structure is meant to act as a buffer during market sell-offs. For the winning strategies in September, this combination of debt allocation and active short-book positioning successfully mitigated the volatility that negatively impacted traditional long-only equity portfolios.
Why Manager Selection Matters
For investors, the wide disparity in results underscores a critical reality: the 'hybrid' label can be misleading. Because these strategies rely heavily on active management decisions—such as when to hedge and which specific instruments to use for protection—the performance is deeply tied to the manager's skill. Investors looking at this category cannot rely on category averages alone. Instead, the focus must shift toward evaluating the manager's historical ability to protect capital during downturns and their success in executing complex hedging strategies.
Looking ahead, market participants may track whether these funds can maintain their defensive positioning if market volatility continues. Factors such as rising bond yields and global geopolitical tensions remain risks for short-term trading strategies. The next monitorable for investors will be whether the wide gap in performance narrows or if the skew towards top managers persists in the coming quarter.