Tags: Hedge | fund | mutual | funds

WSJ: Be Wary of Investing in Hedge-Fund-Like Mutual Funds

By    |   Monday, 24 March 2014 12:02 PM

For investors who don't have the millions of dollars required to invest in many hedge funds, there's an alternative — mutual funds that deploy hedge fund strategies.

Such funds had $286 billion of assets as of Dec. 31, soaring from $41 billion five years earlier.

But be careful about investing in these mutual funds, writes Rob Copeland of The Wall Street Journal.The funds utilize complicated investment strategies that are difficult for investors to track, he says.

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A lot of the funds haven't been around for very long, and just like hedge funds, the popular impressions of their gains are often much higher than reality, Copeland notes.

"I wouldn't touch it with a 10-foot pole," economist Harry Markowitz, who won a Nobel Prize for his work on investing, told The Journal. "Opaque is bad, and complicated is bad."

Hedge-fund-like mutual funds also have high fees. Alternative mutual funds, which include many hedge-fund-style funds, have average annual expenses of 1.87 percent, compared with 0.75 percent for passive index funds, according to Morningstar.

If you are going to invest in the funds, remember that hedge fund strategies are often designed to minimize losses rather than maximize gains.

The growth of hedge-fund-like mutual funds is a good thing for money managers with expertise in that area.

"The growing investor demand for liquid alternatives is putting PMs [portfolio managers] who can go both long and short in hedge or mutual funds in high demand," Sasha Jensen, founder of recruiting firm Jensen Partners, told CNBC.com.

"The line between hedge and mutual funds is increasingly blurry."

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For investors who don't have the millions of dollars required to invest in many hedge funds, there's an alternative - mutual funds that deploy hedge fund strategies.
Hedge,fund,mutual,funds
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2014-02-24
Monday, 24 March 2014 12:02 PM
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