Corporate & Securities Law

After a decade of success with high net worth institutional investors, hedge fund managers are seeking to tap into a relatively untapped market.  They are creating mutual funds with alternative strategies used by hedge funds in order to attract to retail investors.  These new products are called hedged mutual funds.

A hedged mutual fund is a mutual fund that is designed to use the same trading strategies employed by hedge fund managers, such as short selling, leverage and the use of derivatives, to reduce volatility in a portfolio while providing the same returns as a traditional long-only equity fund.  Like hedge funds, a hedged mutual fund also seeks to generate an absolute return, which is a positive return on investment regardless of which direction the market is moving.  

Unlike hedge funds, however, hedged mutual funds have several advantages, including  being subject to more regulation, being more transparent than hedge funds, being liquid and having lower fees than hedge funds.

However, investors should be cautious when evaluating an investment in a hedged mutual fund. Hedged mutual funds should not be viewed as a substitute for traditional long only mutual funds, but rather as a portion of one?s overall portfolio.  Investors should not confuse a hedged mutual fund for a mutual fund, because their respective goals, and the strategies used to meet those goals, are fundamentally different.   Hedged mutual funds are also aimed at those who can take more risk for a greater return.  Investors should make sure that a hedged mutual fund is consistent with their overall investment objectives. 

If you are an investor who has suffered substantial losses as a result of an investment in a hedged mutual fund, contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 to discuss your matter.