While mutual funds that act like hedge funds may be all the rage in theory, they are not necessarily a success in practice. A column in the Wall Street Journal
reports that the performance of these funds is lackluster. , they continue to pull assets and more fund firms have hedge-like products in the pipeline.
The 35 hedging mutual funds tracked by Morningstar have grown to $12.7 billion at the end of September from $4.6 billion at the same time in 2003. Even with that growth, hedging mutual funds account for a sliver of the overall $1 trillion in all hedge fund assets.
One reason may be their middling performance. While hedging mutual funds are up an average of 3.1 percent so far in 2005 (easily topping the 0.76 percent loss by the S&P 500, they significantly trailed the market in 2004. Hedging mutual funds gained a little more than 5 percent in 2004, well behind the S&P 11 percent plus return.
These mutual funds are also lagging true hedge funds that have gained roughly 6 percent so far this year and 9.6 percent last year, according to Hedge Fund Research. Take those numbers with a grain of salt; however, as hedge fund returns are self-reported and included heavy survivorship bias.
Among the largest hedging mutual funds are Robeco Boston Partners Long/Short Equity Fund, The Merger Fund, and the Calamos Market Neutral Fund.
The WSJ also reports that T. Rowe Price will not be one of the fund firms starting its own hedging mutual fund. Still, it does report that James S. Riepe, the soon-to-retire vice chairman of T. Rowe Price admits that mutual funds that are able to integrate hedging strategies would "be far more attractive than hedge funds because their [lower] fees, transparency and liquidity give an investor a better shot at making money."
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