Mutual funds are experimenting with their strategies a bit, borrowing from the hedge fund world, and testing risky investment strategy “130/30,” according to the Wall Street Journal. The strategy is a way to place bets that stock prices will fall, in hope of profiting from those declines. Mutual funds typically shy away from betting on falling prices, although a handful have tried the technique.As hedge funds and other loosely regulated investments attract piles of investors’ money, more mutual funds are switching their game.
In April, ING Funds launched a 130/130 fund, and last month UBS Global Asset Management started its own version. Supporters of the strategy say it can add 2% or more to a portfolio’s returns above the Standard & Poor’s 500-stock index every year, often with less volatility. This happens because selectively betting that some stocks will decline can provide a cushion in a falling market.