Some mutual funds, looking to boost returns or hedge their market exposure, have been turning to derivatives, particularly bond and commodity mutual funds, The Wall Street Journal reports. And this has been causing problems for the people wearing the green shades in the back office.
Complex and thinly traded, derivatives are difficult to properly value. It’s also difficult to determine the amount of tax they should pay. As a result, many funds with derivative holdings have had to restate their financials in the past year. Some have thrown their hands up, and sold the instruments.