Hedge Fund Reader : Can Mutual Funds perform like Hedge Funds?

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July 19, 2005

Can Mutual Funds perform like Hedge Funds?

Mutual Funds have been traditionally seen to be conservative in their investment techniques. Their returns have also been modest when compared to those of the Hedge Funds. Mutual Funds have been seen creating funds that incorporate hedge funds strategies like long short and ‘market-neutral’ strategies. However very few have actually been successful. According to Bloomberg, only 29 mutual funds that have made this work and it averages a modest 2.4 % annual return over the past three years. Much of their shyness also comes from the gamut of trading scandals and a prolonged stock bear market which makes them more conservative in approach. As such their inherent personalities set the two apart and several cases when mutual funds have attempted to go the hedge funds way have led to disasters. Charles Bath, who helps manage Diamond Hill Focus Long-short fund however finds a lot of similarities between the two and is optimistic about the two treading the same path. Detnews.com reports:

“Amid a stock bear market and trading scandals, it's also been suggested that mutual funds have been wary of trying bold new ventures these past few years. Most mutual fund managers and fund categories that have prospered lately have a distinctly conservative bent.”

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July 19, 2005 in Emerging Markets | Permalink