Wall Street is nothing if not inventive. It constantly churns out new products to attract investors' dollars. But not every shiny new product that comes down the pipeline is a good match for long-term investors. Folks who jump at the chance to be a part of something new may find themselves stuck holding the bag somewhere down the road.

Losing luster
One of the latest casualties of the ongoing war for your money is the 130/30, or long-short, mutual fund. These funds typically engage in a 30% short position of stocks they think are overvalued, then use that leverage to add another 30% to their long position of stocks they believe are attractive opportunities, ending up with an effective 130% long and 30% short position.

In theory, the idea sounds great. Managers get to double down on stocks they like, while also benefitting from the decline of overpriced securities. 130/30 funds started popping up a few years ago to wide acclaim, and the number of funds available quintupled from four to more than 20 in a short period of time.

Unfortunately, these funds haven't exactly lived up to expectations. According to Morningstar data, long-short funds fell behind typical long-only funds during the recent bear market, losing roughly 2.2 percentage points more than regular mutual funds. And that underperformance continued as the market rebounded, with this group gaining 41.2% compared to 43.4% for their long-only counterparts. Several 130/30 funds have since closed or been merged, leaving the number of available funds hovering around a dozen. Total assets in funds that bill themselves as 130/30 funds amount to roughly $1 billion, far less than was predicted just a few years ago.

Don't chase your tail
Of course, it's a bit premature to declare 130/30 funds completely dead on arrival. After all, we've just come through a rather challenging and unique economic and market environment. It's perfectly reasonable to think that these funds could stage a comeback in the near future. But the rise and fall of these investments highlights one of the dangers of chasing investment trends, rather than focusing on long-term needs and solutions.

Investors are notorious for chasing performance and moving into and out of asset classes at exactly the wrong times. Witness the massive rush into bonds in the past few years, which is occurring at the tail end of a long bull market for bonds and a rough decade for stocks. History and current valuations make a pretty compelling argument for stocks outperforming bonds over the next decade, but that hasn't stopped investors from taking refuge in the perceived safety of fixed-income securities.

I think the idea of long-short funds is fundamentally sound, but like so many things, the reality falls short of the ideal. One of the biggest problems with 130/30 funds is that they're handicapping themselves from the start, thanks to their high -- and in some cases outrageous -- costs.

Like so many new investment products, novelty tends to come with a price. Of the dozen or so existing 130/30 or 120/20 funds, including all their various share classes, the average expense ratio is a shocking 1.87%! Fund expenses range from a reasonable 0.95% to an eye-popping 3.56%, but it's hard to argue that these options are a better bargain than a low-cost exchange-traded fund, or even an actively managed mutual fund.

Finding a winner
Given the general high expenses of these funds, it's hard to find solid choices with good track records. For example, the ProShares Credit Suisse 130/30 Fund (NYSE: CSM) is an index-tracker with a relatively low 0.95% expense ratio, but the fund has only been in existence for a year, and it tracks an obscure index.

The Fidelity Advisor 130/30 Large Cap Fund (FITOX) includes some big names among its long stock picks. For instance, both Chevron (NYSE: CVX) and Microsoft (Nasdaq: MSFT) receive high marks on a fundamental basis from Fidelity's analysts, and also pass manager Keith Quinton's quantitative metrics for strong cash flow and momentum.

On the other hand, stocks that are rated a "sell" by Fidelity analysts, exhibit poor momentum, and are considered overpriced become candidates for the short side of the portfolio. Two of the largest short positions here based on these criteria include electric utility firm Progress Energy (NYSE: PGN) and payroll-processing firm Paychex (Nasdaq: PAYX). This fund offers a low 1.15% expense ratio, one of the lowest of the bunch, but the fund has posted an average annualized 16.4% loss since its May 2008 inception, compared to a 5.4% loss for the S&P 500.

On the other hand, the BNY Mellon US Core Equity 130/30 Fund (MUCMX) has beaten the market but comes with high costs. The fund first uses computer models to identify attractive stocks based on their current price, growth prospects, and financial profile. Then fundamental analysis is utilized to determine the most attractive "long" and "short" candidates.

Based on these measures, the fund currently holds a long position in fast-growing tech firm Apple (Nasdaq: AAPL) while shorting the more stodgy consumer goods stock General Mills (NYSE: GIS). This fund has actually outperformed the S&P 500 since its September 2007 beginnings, but by less than a single percentage point on an annualized basis. And when you consider that the fund comes with a 2% price tag, it's hard to justify spending that much for such a small lead over the broader market.

While more time is needed before a final judgment on 130/30 funds can be made, their experience should serve as a cautionary tale for investors. Avoiding trends and keeping an eye on expenses are two of the most important things you can do for your portfolio. The tools you need to succeed in your investing journey won't cost you an arm and a leg. Beware of anything that comes with that sort of price tag.