Hedge-like Funds Reduce Risk And Offer Diversification
Posted on June 19, 2007
Hedge funds have been around for some time now and most with a net worth of less than seven figures can not even take a test drive. When I think of hedge funds, I envision high fees, limited access, and large returns not tied to any particular market. The biggest advantage of hedge funds is to provide stability on your investments irregardless if the market is up or down. This is accomplished because of the numerous complex investments the fund manager is at liberty to pursue since there is no regulation from regulatory agencies including the SEC and the NASD. Hedge funds strategies include shorting assets, taking a long position, pursuing futures, swaps, commodities, and derivative contracts. The downsize to the large potential for returns and diversification is the high fees hedge fund managers charge for their returns. Typically fees range from 1.5% to 2%, and 20% of profits.
For the investor without a seven figure net worth there is the hedge-like fund. This is essentially a mutual fund that uses hedging strategies. The goal of the hedge-like mutual fund is very similar to a standard hedge fund: produce results for the shareholder regardless of the market performance. The most popular hedge-fund like strategies include:
- Long-short funds: Buy securities to hold while simultaneously selling others short. An example of this type of fund is Gateway Fund (GATEX).
- Market-neutral funds: These funds use long and short positions equally. The long positions are designed to earn high returns in a bull market, while the short positions are suppose to produce gains in a bear market. An example of this type of fund is Phoenix Euclid Market Neutral (EMNAX).
- Merger or arbitrage funds: These funds take advantage of the expected price shifts occuring after the announcement of a merger or acquisition offer. An example of this type of fund is The Arbitrage Fund (ARBFX).
While hedge-like funds are not a total solution they are another form of diversification shielding the investor from market volatility. Keep in mind with the aggressive strategies of hedge-like funds they have an inherent volatility themselves.
Related Posts
The Onion Invests In Hedge FundsHow Much Risk Tolerance Can You Handle?Cell Phone Banking Is Here» Filed Under 401K, Investing, Stocks
Comments
2 Responses to “Hedge-like Funds Reduce Risk And Offer Diversification”
Leave a Reply
[…] get to that point, you’ll want to read what Plus6 from Plus6 Personal Finance has to say in Hedge-like Funds Reduce Risk And Offer Diversification. Just make sure the funds aren’t on the way down due to investments in bad subprime […]
Hey, thanks for throwing those options out there. A couple that I’ve researched and highlighted are the BP fund and Diamond-Hill Long-Short. It’s cool to see these funds out there without the 2 Million min that exists for regular hedge fund investors, yet they beat the market averages in up and down markets. I own the BP one myself.
Dan