A market neutral strategy should provide meaningful diversifying benefits for investors given the expected low correlation to the underlying equities market.
Market neutral is often mistakenly viewed as assumed to be negatively correlated. The fact that the equity market has a negative month does not imply a market neutral strategy will produce a positive return.
This would imply the strategy is negatively correlated. Rather market neutral should be considered as uncorrelated to the equities market over the medium to long term, notwithstanding the potential for periods of both positive and negative correlation to equities in the short term.
There will be periods from time to time when market neutral strategies will not perform well.
No investment can legitimately claim to perform at all times in all market conditions.
This reflects the need to have a diversified portfolio with exposure to a range of assets and strategies that will perform through various market cycles.
One of the aims of diversification is to reduce volatility outcomes and improve overall risk adjusted returns.
This can be best achieved through combining assets that are largely uncorrelated.
Put simply when a particular asset within a portfolio performs poorly other assets will generally help to smooth out portfolio returns.