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Long/Short Mutual Funds Make Pitch For HF Investors

Date: Thursday, November 9, 2006
Author: Dailyii.com

Though not likely yet a threat to the hedge fund industry, long/short equity mutual funds are growing like weeds, and may some day rival the real thing. Citing figures from Financial Research Corp., Barron’s reports there are now 32 of these long/short mutuals, and already this year they’ve attracted $2.9 billion, more than the $1.9 billion in last year and $1.6 billion in 2004. “The group is big enough now, and there’s enough interest in them to justify grouping the funds together to help investors understand and compare them,” Morningstar analyst Todd Trubey told Barron’s. While the cost of investing in these mutual funds are higher than their more traditional counterparts, says Barron’s, the fees are still much lower than what hedge funds charge – a potential selling point for investors who find high HF fees distasteful. In addition, the long/short mutual funds have no lock-up periods and offer greater transparency, since mutual funds are regulated and are required to disclose more information that the unregulated hedge funds do. Barron’s says the trick for the long/short mutuals – the biggest ones in the field being the Gateway Fund, Hussman Strategic Growth and JP Morgan Multi-Cap Market Neutral Fund – is that the additional cost for a mutual fund is worth it. According to Trubey, “I suppose there’s a cachet for paying up, but unlike a yacht, paying more doesn’t necessarily get you something better. In Investing, it’s all about returns, and expenses come directly out of returns.”