They are built like mutual funds, but act like hedge funds, and few investors seem to know what to make of them. That may change next month, when Chicago-based
Industry insiders look forward to the new list, which they say might help such funds gain market traction. "There is not a clearly defined group of funds that people can compare us to," said Richard J. Gates, a portfolio manager at
Indices that track traditional mutual funds do not work well for those that mimic hedge funds. More than regular mutual funds, hedge-like mutual funds aim to return money regardless of what happens in the stock market overall. But in the name of making some money, hedge-like mutual funds sometimes miss out on big market upswings in order to avoid major drops. They are also more expensive to operate, difficult explain to investors, and therefore tough to sell.
Most importantly, such funds often don't deliver such stellar performance. In fact, in 2005, although major indices delivered mediocre performance, conventional mutual funds gave little ground to the hedge-like cousins.
Although funds filled with small companies' bargain stocks and bond funds both lagged, hedge-like mutual funds failed to capture investors' attention because investors instead turned to actual hedge funds.
While this may change once investors are given a reliable measuring stick, Morningstar analyst Sonya Morris said that each of these funds is different, and investors must be sure to understand them well before buying.
