Hedging market risk: a vehicle for high net worth individuals is becoming more accessible. (Mutual Funds Focus).Rich people may not be physically different from everyone else, they certainly invest differently. For decades, the super wealthy (along with institutions) have been the only ones able to invest in hedge funds hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" . "Over the past 10 years, hedge funds have outperformed the U.S. stock market by several percentage points per year, with about half the risk," says Bill Santos Santos (sän`t  s), city (1996 pop. 412,288), São Paulo state, SE Brazil, on the island of São Vicente in the Atlantic just off the mainland. , executive vice president and chief
marketing officer at Montgomery Asset Management in San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden .Now, these potentially high-return, low-risk investments are becoming available to millionaires, as well as billionaires. Moreover, mutual funds that mimic some aspects of hedge funds are also on the market. "Nevertheless," says Santos, "hedge funds aren't for everyone. Anyone who is interested should work with a knowledgeable advisor to see how a hedge fund might fit into a diversified diversified (di·verˑ·s portfolio." Hedge funds are also known as "absolute return" vehicles because their managers aim for positive returns in all types of market conditions, regardless of how stocks or bonds perform. In order to earn profits, hedge fund managers can sell short, use leverage, dabble dab·ble v. dab·bled, dab·bling, dab·bles v.tr. To splash or spatter with or as if with a liquid: "The moon hung over the harbor dabbling the waves with gold" in derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. , and engage in arbitrage arbitrage: see foreign exchange. arbitrage Business operation involving the purchase of foreign currency, gold, financial securities, or commodities in one market and their almost simultaneous sale in another market, in order to profit from price . Thus, whether they think Microsoft stock is overvalued Overvalued A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a or the Indian rupee Noun 1. Indian rupee - the basic unit of money in India; equal to 100 paise rupee Indian monetary unit - monetary unit in India paisa - a fractional monetary unit in Bangladesh and India and Nepal and Pakistan is undervalued Undervalued A stock or other security that is trading below its true value. Notes: The difficulty is knowing what the "true" value actually is. Analysts will usually recommend an undervalued stock with a strong buy rating. , hedge fund managers can place money anywhere they believe they'll earn big profits. Hedge funds are private investments, so you have to hear about them from a financial pro. "Some hedge funds are limited to 99 investors," says Dan Geraci, chief executive at Pioneer Investment Management USA Inc. in Boston. "Traditionally, the minimum investment has been $1 million, or even more." Lately, though, the hedge fund universe has become a bit more accessible. "Some financial firms have put together `funds of funds,' with minimum investments of $100,000," says Geraci. Jana Thompson Thompson, city, Canada Thompson, city (1991 pop. 14,977), central Man., Canada, on the Burntwood River. A mining town, it developed after large nickel deposits were discovered in the area in 1956. , vice president for investment advice and products at Charles Schwab Charles Schwab can refer to:
A mutual fund that invests in other mutual funds. Notes: For example, an investor would select a general risk profile and the fund-of-funds manager would pick underlying investments from a range of products managed by external managers. wind up with interests in several hedge funds, all of which have been screened by the manager of the fund of funds. These investors participate with several different hedge fund managers, using various investment styles." What's more, fund-of-funds minimums are coming down. Montgomery has a $50,000 required investment for entry, while Schwab may have a $25,000 to $50,000 minimum when it begins to offer and introduce some funds of funds later this year. (Pioneer has yet to announce the minimum investments for its upcoming funds of funds.) Thus, an investor with a $500,000 portfolio who wants to allocate To reserve a resource such as memory or disk. See memory allocation. $50,000 (10%) to hedge funds will be able to do so. The one catch: He or she must have a net worth of at least $1.5 million. "Investors in these funds of funds have to meet this requirement to be a qualified investor," says Thompson. But there are ways nonmillionaires can benefit, too. "A number of mutual funds now use some hedge fund strategies," says Russ Kinnel, director of fund analysis at Morningstar Inc. in Chicago, "such as going short as well as long," These "long-short" funds buy some stocks, in anticipation of appreciation, and sell other stocks short, hoping to make money when their prices fall. Kinnel says that he is impressed im·press 1 tr.v. im·pressed, im·press·ing, im·press·es 1. To affect strongly, often favorably: by some "market neutral" funds that have adopted the hedge funds approach of aiming for profits in all kinds of markets. These "tame versions" of hedge funds have had mixed results, but there are some he cites with approval. "Calamos Market Neutral Fund (CVSIX) is run by a manager who is very knowledgeable about convertible bonds," he says. But whether you choose hedge funds, funds of funds, or their mutual fund cousins, Kinnel cautions, "Don't put more than 10% of your portfolio into such funds. Before you invest at all, make sure you understand how the fund will invest and how your money will be used to compensate the manager."
Market Neutral Mutual Funds
Fund Name (Ticker) 1-Year Ann. 3-Year Ann.
Total Return * Total Return *
AXA Rosen VI Mkt Netrl Inst (BMNIX) 26.55% 9.34%
AXA Rosen VI Mkt Netrl Inv (BRMIX) 26.28 8.99
AXA Rosen SS Mkt Netrl Inst (SSMNX) 23.44 9.44
AXA Rosen SS Mkt Netrl Iv (RMNIX) 23.13 9.12
Phoenix-Capital West Mrt Neu A
(EMNAX) 9.1 6.06
Phoenix-Capital West Mrt Neu B
(EMNBX) 8.23 5.28
Phoenix-Capital West Mrt Neu C
(EMNCX) 8.21 5.25
Calamos Market Neutral B (CAMNX) ** 5.18 --
Calamos Market Neutral A (CVSIX) ** 3.95 9.98
Enterprise Merg & Acquis Y (EMAYX) 1.11 --
Enterprise Merg & Acquis A (EMAAX) 0.61 --
Enterprise Merg & Acquis C (EMACX) 0.12 --
Enterprise Merg & Acquis B (EMABX) 0.12 --
Market Neutral Mutual Funds
Fund Name (Ticker) Toll-Free Minimum
Number Initial Investment
AXA Rosen VI Mkt Netrl Inst (BMNIX) 800-447-3332 $1,000,000
AXA Rosen VI Mkt Netrl Inv (BRMIX) 800-447-3332 2,500
AXA Rosen SS Mkt Netrl Inst (SSMNX) 800-447-3332 1,000,000
AXA Rosen SS Mkt Netrl Iv (RMNIX) 800-272-2700 500
Phoenix-Capital West Mrt Neu A
(EMNAX) 800-243-1574 500
Phoenix-Capital West Mrt Neu B
(EMNBX) 800-243-1574 500
Phoenix-Capital West Mrt Neu C
(EMNCX) 800-243-1574 500
Calamos Market Neutral B (CAMNX) ** 800-823-7386 N/A
Calamos Market Neutral A (CVSIX) ** 800-823-7386 N/A
Enterprise Merg & Acquis Y (EMAYX) 800-821-9540 1,000,000
Enterprise Merg & Acquis A (EMAAX) 800-821-9540 1,000
Enterprise Merg & Acquis C (EMACX) 800-821-9640 1,000
Enterprise Merg & Acquis B (EMABX) 800-821-9540 1,000
* AS OF JUNE 11, 2002 ** FUND CLOSED TO NEW INVESTORS
SOURCE: MORNINGSTAR INC.
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