Individual investors who want something more than a plain-vanilla investing plan are increasingly trying out a new option: mutual funds that use hedging strategies.
While a standard mutual fund looks for companies with good financial performance and waits for those stocks to rise, a hedge-like mutual fund flies into special situations.
It can be aggressive, betting that stocks will fall or trying to pick takeover targets.
The primary goal of hedging one’s investment bets is to have positive results whether the market is up or down. When stocks are high, hedge funds may not produce impressive results.
But during big market downturns, analysts say that hedge-like mutual funds can reduce risk.
“When you really want diversification to work, of course, is when the market goes haywire. Not just the usual up and downs,” said Andrew Clark, senior research analyst for Lipper Inc., a mutual fund analysis firm.
Investors are pouring lots of money into them. Assets in one of the most popular categories, long-short mutual funds, rose to more than $19 billion by March, a more than fivefold increase from $3.6 billion at the end of 2001, according to Financial Research Corp. of Boston.
