Hedge fund strategies for the little guy
New mutual funds let individual try alternative investments.
301 Moved Permanently
NEW YORK (Fortune) -- For retail investors who want to put money into the hedge-fund-like vehicles, the options continue to grow.
Back in March, Fortune reported that AQR Capital Management -- one of the industry's biggest names -- offered its first mutual fund: the Diversified Arbitrage Fund.
In May, investment manager Turner Investment Partners launched the Turner Spectrum Fund (TSPCX), which invests in six different long/short equity pools (also managed by Turner Investment Partners) following a mix of strategies: market neutral, long/short, small-cap, global health care, global macro, and consumer discretionary.
Investor class shares require a $2,500 minimum initial investment and have an expense ratio capped at 2.20%.
The latest entrant is Bull Path Capital Management. In June, it converted one of its long-short hedge funds into a long-short equity mutual fund, the Bull Path Long Short Fund (BPFCX).
"We wanted to offer our product to the mutual fund community, which is a bigger pool of assets with more demand," says Rob Kaimowitz, portfolio manager of the fund.
And he thinks that the hedge fund business model, especially for funds that use a long-short equity strategy, needed to be improved. "There is no reason fund managers can't provide daily liquidity and daily net asset value, rather than the monthly data that hedge funds provide. And the fees for a mutual fund are much lower, so investors get more of the upside."
The A Class shares require a $1,000 minimum investment. Fees are capped at 1.7%. This is a far cry from the 2% that hedge funds charge to manage your money and the 20% cut they take on all profits.
Since this mutual fund is simply a converted hedge fund (in fact, many investors were former hedge fund limited partners), there is a performance history for investors to look at. According to Lipper, it has outperformed the S&P 500 since inception. Its five-year annualized total return ending March 31, 2009 is 3.32% vs. -4.76% for the S&P.
Even with the new entrants, the field is still small: Alternative investment strategies account for only $59 million of the $6 trillion mutual fund market.
And Lipper research manager Jeff Tjornhoj cautions that they should not account for a big portion of your assets, either. "These funds capture parts of the market that a traditional mutual fund cannot," he says. "Investors should use these strategies to reduce volatility in a portfolio, not to be 100% invested in them."