Market Neutral Strategies: How Aussies Can Invest Smarter in 2025

Australia’s financial landscape in 2025 is more dynamic—and unpredictable—than ever. Global economic uncertainty, shifting interest rates, and new regulatory measures have many investors looking for smarter ways to manage risk. Enter market neutral strategies: a sophisticated approach that aims to profit regardless of whether markets are rising or falling. But how exactly do these strategies work, and are they right for your portfolio?

What is a Market Neutral Strategy?

Market neutral strategies are investment approaches designed to eliminate—or at least significantly reduce—market risk. Instead of betting on the overall direction of the market, investors using this strategy balance their long and short positions. The goal? To generate returns that are independent of whether the market is booming or busting.

• Long positions: Buying assets expected to increase in value.

• Short positions: Selling borrowed assets expected to decrease in value, aiming to buy them back later at a lower price.

By matching these positions, the portfolio aims to “neutralise” broad market movements—hence the name. The classic example is the equity market neutral fund, but variants exist across asset classes.

Why Market Neutral is Trending in Australia in 2025

Several factors have made market neutral strategies particularly attractive in 2025:

• Persistent volatility: Equity markets have swung wildly, with the ASX200 experiencing double-digit fluctuations in the first half of the year.

• Interest rate uncertainty: The RBA has kept rates on a data-dependent path, keeping investors guessing about future moves.

• Regulatory tweaks: Updates to managed fund disclosure rules have improved transparency, making it easier for retail investors to access market neutral funds.

• Rise of retail sophistication: More Australians are seeking advanced strategies to diversify beyond traditional buy-and-hold investing.

In response, leading Australian fund managers—like Platinum Asset Management and Perpetual—have expanded their market neutral offerings. Meanwhile, new fintech entrants are making these strategies more accessible via ETFs and managed accounts.

How Do Market Neutral Strategies Work? Real-World Examples

Let’s break down a typical scenario. Suppose an Australian fund manager is bullish on healthcare stocks but bearish on the broader market. They might:

• Go long on CSL Limited (ASX: CSL), anticipating strong earnings growth.

• Go short on a similar-sized position in a broad ASX200 ETF, expecting the overall index to underperform.

If the market falls but CSL outperforms, the manager can still generate positive returns—regardless of the market’s direction. The key is careful selection and sizing of positions to ensure true neutrality.

In 2025, we’re also seeing market neutral approaches applied to ESG investing. For example, some funds are going long on companies with improving sustainability scores while shorting those with deteriorating ESG metrics, aiming for alpha that’s not tied to the market cycle.

Pros and Cons of Market Neutral Investing

Market neutral isn’t a silver bullet. Here’s what investors should consider:

Pros:

  - Lower correlation to market movements—potential for steady returns in all conditions.

  - Risk management: Reduces exposure to macro shocks (like central bank surprises).

  - Flexibility to exploit both winners and losers in the market.

Cons:

  - Higher fees: More complex strategies often mean higher management costs.

  - Complexity: Requires manager skill to avoid unintended risks (e.g., sector or factor tilts).

  - Performance drag: In flat or trending markets, returns can lag traditional long-only portfolios.

According to Morningstar’s 2025 data, Australian market neutral funds have delivered average annual returns of 4–6% over the past three years—less than the best-performing growth funds, but with far less volatility.

Is Market Neutral Right for You?

These strategies suit investors who:

• Want to smooth out portfolio ups and downs.

• Are comfortable with more sophisticated (and sometimes less transparent) fund structures.

• Seek to diversify sources of return beyond traditional asset allocation.

In 2025, the rise of low-minimum ETFs and managed portfolios means you don’t need millions to get started. Still, it pays to do your homework: look for reputable managers with a track record in market neutral investing and understand how their strategy is implemented.