Yet another take on the active/index issue:
http://news.morningstar.com/articlenet/article.aspx?id=714208

Regarding fund classifications (VF and Hank):
Well there you go again :-) Seems lots of people like to say that Fund A or Fund B is in the wrong category, so M* must be stupid, or M*'s misapplied its own methodology, or ...
May I respectfully suggest that people look at M*'s methodology for classifying long/short funds and market neutral funds. How do you feel these could be improved, or if you feel they should be thrown out, could you suggest different rules or even different categories that would reflect a better understanding of how these funds work? If it helps, here's a guide to all of M*'s alternative strategy categories.
Regarding HSGFX. It is indeed never net short. Which explains why it will never be considered a bear fund. But that doesn't preclude it from making extensive use of shorts, so long as the result is not more short than long.
As M* describes this fund in its Long/Short methodology paper, it makes extensive use of shorts to reduce or remove market risk. But those are synthetic shorts. It seems to be taking the market out of the equation by going long individual securities and shorting the entire market (net zero equity exposure). If it's made better selections than the market as a whole, it will go up in value else down, independent of market moves.
The latest fund report says that the fund is using these synthetic shorts (not in those words) to fully hedge the market. My guess is that may explain why the fund moved from Long/Short to market neutral. It may have gone from hedging some market risk to hedging virtually all market risk. M*'s methodology for market neutral requires these funds to have equity beta less than 0.3 in magnitude.
Vanguard appears to subsume equity market neutral funds (ones that balance longs and shorts) into long/short. Its paper regards them as just a subcategory of long/short where their net equity exposure is zero. M* in contrast seems to focus on market exposure level as the primary differentiator rather than a fund's strategy. Neither Vanguard nor M* does what that the original paper criticizes - calling long/short funds equity hedged funds. Vanguard even goes out of its way to talk mostly about long/short funds that are 100% net long.

Several of my favorite funds are mentioned on this thread, VHCOX which I've owned since 2001, and POAGX, since 2007. As you can imagine, they've both had some style drift as their assets have expanded...not that I'm going to complain too loudly though. Much less SC than before.
Bee...One of the funds I've recently purchased for my rollover IRA which I believe will be a nice complement to these 2, would be SCMFX. It is a small/mid blend, and if you do a performance comparison between that and POAGX, you will see a fairly even performance match until the biotechs powered the Primecap fund ahead over the last 2 years. SCMFX has been profiled on MFO, and it held up fairly well over the recent turmoil perhaps due to the additional value component.
Per your comment as well, I was also intrigued by the Eventide family, and have a starting position in ETNHX. More spice than my VGHCX holding, but I am thinking this is a lower risk way to get exposure to the biotechs than an individual holding, and I wanted to stay away from the ETFs.
press

A broad answer to @Edmund 's questions is that Long/Short funds are somewhat unconstrained funds, in that they remove (or lessen) the constraint on being long only. Just as with unconstrained bond funds, about which I made the same comment in another thread, removing constraints is a double edged sword. If a manager is skilled in the larger pool of investment choices, great. But few are.
See Crabbe Huson Special (1990s). (Link is to google search; Baron's article). Manager was then allowed to go short. M* quote: "This is a dismally failed experiment in shorting ... He's just not demonstrated that it's one of his strengths."
More generally, see this paper by Vanguard, discussing long/short funds from the perspective of perturbations from market indexes (what you'd expect from an index/quant house). Essentially, selecting some stocks (overweighting) is by definition a bet against the rest of the stocks in the market (underweighting). This is a perspective that holds regardless of whether shorting is allowed. What a long-only constraint does is limit the degree of underweighting (to a zero position, obviously)
Viewed from that perspective, shorting makes sense as an extension of an existing strategy, not something new. But it comes with the qualification, as noted in the paper (p. 16), that shorting has other quirks that make going long and short not as symmetric as one would like. One obvious difference is the risk of unlimited loss (vs. 100% for long positions). Another is that securities may not always be available to short. A third, which may not be in this paper, is that the execution costs for going short are higher than for going long.
All of these factors make managing short positions different from managing long positions. I don't think the difficulty in long/short funds is so much a matter of issue selection as it is dealing with the different nature of short positions, and fitting that into an overall strategy - that's the first part (but only the first part) of Edmund's question #3.

FYI: Q: Am I being cheated by ETFs?
A: Exchange-traded fund are billed as a great way for investors to save money on fees. That's true. But they're not free and there are costs investors need to be aware of.
Regards,
Ted
http://www.usatoday.com/story/money/columnist/krantz/2015/09/11/cheated-exchange-traded-funds-etfs/72013082/

POAGX. Midcap Growth. Hmmmm.
Mkt capitalization of holdings, as % of portfolio (6/30/2015):
Giant 9.40
Large 21.13
Small 27.44
Micro 15.73
///TOTAL NON-MC: 73.7% of POAGX portfolio///

FYI: Equal-weighted exposure to the S&P 500 for 30 basis points
Regards,
Ted
http://www.investmentnews.com/article/20150910/FREE/150919987?template=printart

Howdy,
Yeppers, happened after the crash in '29. If I recall folks pretty much avoided stocks until the war and later. Hell, my folks just passed in their mid-80's and they wouldn't ever buy a stock. CD's and Series EE. Oh, and don't even suggest it.
I worked with quite a few people in state gov't that exited stocks after the dot.com meltdown in 2000 and they've never gone back. '07-08 cost more players.
And in addition to the folks that have been permanently scared away, how about the 100's and thousands that got thrown under the bus and will never be able to AFFORD to own stocks . . . and never work a job that offers that option with a 401k. All those that were forced to redeem their 401 in an effort to avoid losing their house.
I think that we can safely assume that it will be a very thin market for a decade or so.
and so it goes,
peace,
rono

@prinx,
Thanks for the fund suggestion. I will check it out. Do you own their healthcare fund ETNHX?
Looks like both POAGX (33%) and ETGLX (22%) significantly overweight healthcare compared to the MG category (13%).
ETGLX (1.5% ER) has a bit of headwind compared to POAGX (.62% ER).
Both were recently created in 2010.

Its my understanding that stock market gyrations over the past 15 years have made millennials disproportionately reluctant to invest the stock market....even if they have the income and savings needed to do so. Another big near term dip in the market might be the nail in the coffin for many of them as far as considering stock market investing goes.

Hi bee,
you will notice below that ETGLX has a somewhat greater return than POAGX
but for taxable accounts it is more tax efficient.
prinx
Tax Analysis
1-Mo 3-Mo 6-Mo YTD 1-Yr 3-Yr 5-Yr 10-Yr 15-Yr Since Inception
(08/31/2015)
Pretax Return
POAGX -5.70 -5.43 -4.78 0.97 4.16 22.83 22.41 13.08 — 13.17
ETGLX -8.43 -10.43 -4.13 1.17 8.11 24.61 22.79 — — —
Tax-adjusted Return *
POAGX -5.70 -5.43 -4.78 0.97 2.81 22.10 21.72 12.70 — 12.82
ETGLX -8.43 -10.43 -4.13 1.17 8.08 24.52 22.19 — — —
% Rank in Category 23 32 49 34 20 1 1 1 —
Tax Cost Ratio
POAGX — — — — 1.30 0.59 0.56 0.34 — —
ETGLX — — — — 0.03 0.07 0.49 — — —
Potential Cap Gains Exposure
POAGX 32.94
ETGLX 11.25

I never fall in love with a fund manager or for that matter even care who he is. I see far too many who are in funds that have lagged for the past 1, 3, and 5 years (some severely) yet refuse to sell because of their confidence in the fund manager. That and the fact they can't admit they were wrong.

It's the 1 year return that is -17.26%. YTD is "only" -7.60%.

This table is interesting. Using the 1928 to 2014 time period includes the negative impacts resulting from the 1929 crash and the crashes in the 30's. So, it hopefully provides a fairly good "worst case" scenario. The results support the view that including at least some stocks in an investment mix is important for most buy and hold investors even during retirement. I was surprised to see the size of the worst case losses for bonds over all holding periods as well as the frequency of losses over all those periods. That's a warning when looking forward 20 years from today! The resilience of the balanced portfolio was also impressive. It would be interesting to see how using a bond portfolio that included corporate bonds might impact the results.

NTHEX down 17.26% over the past year and a really poor 5 and 10 year record. And this is a bond fund! The father/son running this fund at one time were the best of the best. There is a moral here but don't want to rile up the board.
Thanks for the correction claimui.

I'll continue to "buy and hold" POAGX. What would be your "yang" to any of these choices since there is considerable volatility?
10 Year comparison of POAGX to these choices:

FYI: These Morningstar Medalists are among our favorites.
Regards,
Ted
http://news.morningstar.com/articlenet/article.aspx?id=714064

FYI: Until recently we had gone several years without a double-digit decline in US stocks. For long-term investors, that length of time can lead to a false sense of security and entitlement—believing that stocks should always go up and they have a right to consistently-positive returns. But that has never been the case; if it were, long-term historical and future returns wouldn’t be as high as they have been or are expected to be. The chart below looks at the periodic returns of stocks, bonds and balanced portfolios from 1928-2014, net of inflation.
Regards,
Ted
http://www.servowealth.com/resources/articles/stock-markets-wake-call

FYI: What if stocks experience their third separate bear market in under twenty years? What would that do to the psychology of investors?
Regards,
Ted
https://theirrelevantinvestor.wordpress.com/2015/09/09/patterned-by-birth/

Okay. Now create a fund which as $3000 minimum investment, not $100,000.