Hedging without getting clipped: some funds offer the benefits of hedge funds without the high fees.Some people would have you believe that in order to get investing profits in a bull or bear market, you have 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" . But these vehicles, which are prized for delivering "absolute returns," are not for everyone. Some hedge funds only accept millionaires and six- or seven-figure minimum investments are common. Hedge funds are largely unregulated Adj. 1. unregulated - not regulated; not subject to rule or discipline; "unregulated off-shore fishing" regulated - controlled or governed according to rule or principle or law; "well regulated industries"; "houses with regulated temperature" 2. , their fees are high, and liquidity is low. For the average investor, there has to be a better way. Dan McNeela a senior analyst at mutual fund tracker Morningstar, says, "A few mutual funds provide [hedge fund] strategies to investors." Investing in these hedge-fund-like mutual funds can be done for as little as $1,000, and you can cash out whenever you like. "Long-short" funds buy, or go long on, stocks they think will appreciate while simultaneously selling, or going short on, stocks they think are overpriced o·ver·price tr.v. o·ver·priced, o·ver·pric·ing, o·ver·pric·es To put too high a price or value on. overpriced Adjective costing more than it is thought to be worth Adj. . (If you sell short on a stock at, say, $25 per share and then close your position once the stock drops to $15, you'd have a $10-per-share profit.) Such an approach is considered less risky than investing in most stock funds because short positions may deliver gains in a bear market. "Although Iong-short funds are generally less volatile than traditional stock funds, they still can be risky. A manager's Iong picks might be losers, while the short positions may go up in value," says McNeela. "Therefore, you'll see large variations among long-short funds." In 2003, for example, Choice Long-Short Fund lost 16.6%, while ICON Long-Short Fund gained 17.7%. So-called "market-neutral'" funds also go long and short. "While long-short funds tend to tilt toward the long side," says McNeela, "market-neutral funds keep a 50-50 balance. Half of the money is long, while the other half is short." Even with such a split, there's always a chance that a market-neutral fund will be long on stocks that aren't performing and short on stocks that are. For example, if tech topples while healthcare skyrockets, such a market-neutral fund could have a disastrous year. Some market-neutral funds, therefore, aim for sector-by-sector neutrality. If it buys long on Pfizer, for example, it might sell short on Merck The goal is to reduce the effects of industry and broad-market swings by consistently generating positive returns via savvy stock-picking. "In practice, market-neutral funds have largely lived up to their billing by diversifying investors' portfolios," says McNeela, "They've often lagged behind the market during good years but beat the market in bad times." McNeela advises investors to look closely at the techniques used by each type of fund. Still other types of hedging strategies may be accessed through mutual funds. There are bear funds that are primarily, if not entirely, short sellers. A relatively new fund, Alpha Hedged Strategies Fund, follows multiple techniques. Several subadvisers manage a portion of the portfolio, pursuing strategies ranging from convertible bond 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 to distressed securities Distressed Securities A company that is currently going through hard times and, as a result, the market value of its securities or assets fall substantially in value. Notes: These securities then become attractive to bottom fishers or vultures. . "This fund has a low minimum investment and daily liquidity," says Alan Weiss There are several men named Alan Weiss:
2. In the canon law, it signifies a master or professor of a college. Dict. du Dr. Call. h.t. 3. Wealth Management Group in Woodbridge, Connecticut Woodbridge is a town in New Haven County, Connecticut, United States. The population was 8,983 at the 2000 census. It is one of the wealthiest towns in Connecticut, ranking 16th in the state in terms of per capita income, and is home to many of the faculty of Yale University. . "So if you have a desire to invest in an alternative investment that doesn't follow the U.S. stock market too closely, then this may be an investment for you to consider." For mutual funds that can help diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. your holdings, Lon Morton, an investment adviser in Calabasas, California Calabasas is a city in Los Angeles County, California, in the western United States. As of the 2000 census, the city population was 23,123. The city was formally incorporated in 1991. , recommends: Alpha Hedged Strategies and Merger funds, Schwab Hedged Equity Select, FPA 1. (hardware) FPA - floating-point accelerator. 2. (programming) FPA - Function Point Analysis. Crescent crescent, emblematic representation of the quarter moon. The crescent and star, ancient Byzantine symbols that became the emblems of Constantinople, were also assumed as the standard of the Ottoman Turks. , Hussman Strategic Growth, Analytic Defensive Equity, Robeco Boston Partners Long/Short Equity Long/Short Equity A hedge fund strategy that involves buying certain stocks long and selling others short. There usually isn't a restriction on the country that the stocks trade in either. , and PIMCO PIMCO Pacific Investment Management Company All Asset All Authority. "If you put a few of them together," he says, "you can get some of the benefits of hedge funds." Keep in mind that an investment in a hedge fund is ultimately a bet on the manager's ability, and the same is true for hedge-like mutual funds. Before investing, look for evidence that a fund's manager has a proven track record.
TOP HEDGE-LIKE MUTUAL FUNDS
1-Year 3-Year 5-Year
Ann. Total Ann. Total Ann. Total
Fund Name Ticker Return * Return * Return *
ICON Long/Short I IOLIX 9.15 17.29 NA
FPA Crescent FPACX 10.54 14.67 18.58
Hussman Strategic HSGFX 6.20 11.24 13.41
Growth
Robeco Boston Partners BPLEX 20.19 7.18 11.33
Long/Short Eq Inv
Arbitrage R ARBFX 1.17 4.91 6.99
Merger Fund MERFX 1.84 4.51 1.86
Analytic Defensive ANAEX NA NA NA
Equity A **
PIMCO All Asset All PAUAX NA NA NA
Authority A **
Initial Toll-Free Expense
Fund Name Investment Number Ratio
ICON Long/Short I $1,000 800-764-0442 1.74
FPA Crescent $1,500 800-982-4372 1.4
Hussman Strategic $1,000 800-487-7626 1.24
Growth
Robeco Boston Partners $2,500 888-261-4073 3.17
Long/Short Eq Inv
Arbitrage R $2,000 800-295-4485 1.95
Merger Fund $2,000 800-343-8959 1.87
Analytic Defensive $2,500 866-777-7818 NA
Equity A **
PIMCO All Asset All $5,000 800-426-0107 NA
Authority A **
* AS OF NOV. 30, 2006 SOURCE: MORNINGSTAR INC. MORNINGSTAR MAKES EVERY
EFFORT TO ENSURE THE ACCURACY AND COMPLETENESS OF THIS DATA, BUT CANNOT
GUARANTEE IT. ** FUND HAS OPERATED LESS THAN ONE YEAR.
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