The line between hedge funds and mutual funds is becoming increasingly blurred as a growing number of money managers introduce mutual funds that use strategies once limited to hedge funds.
What’s more, some hedge-fund managers, who historically catered only to the wealthiest, are now offering their services through mutual funds, which are accessible to a wider group of investors.
The trend is providing average investors with a low-cost way of diversifying their portfolios through the use of hedging strategies – a category of investing techniques often too complex or risky for most small-time investors.
Since 2003, the number of hedge-fund-like mutual funds, also called “long-short” funds, has more than doubled, increasing from 25 to 53 funds, according to investment researcher Morningstar. Long-short funds allow asset managers to buy stocks as well as sell stocks short, a technique used to profit from the falling price of a stock.
Denver-based Janus Capital Group, for instance, rolled out a long-short fund last August. The fund has attracted $50 million in investment since then. Jerry Paul, head of Greenwood Village-based Quixote Capital Management, ran a hedge fund for years before introducing a mutual fund in 2005.