WEST PALM BEACH, FL (www.HedgeCo.Net) – Mutual fund companies suffered dearly as a result of the technology market crash of the late nineties and early years of 2000. Some mutual fund firms haveinitially tried to establish hedge funds under the same roof, but such trend was slowed down by charges of conflict of interest inherent in such operation.
A new published research report has suggested that pools of mutual fund firms do indeed take on the same tactics employed by hedge funds for trading. However, such hedge fund look-alikes have not been able to match the flexibility of hedge funds that still can employ robust and advanced trading strategies which are not yet used by the new hybrid mutual funds.
Another area of difference between hybrid mutual funds and hedge funds lies in the level of leverage employed in trading. Mutual funds can only borrow $1 dollar for every $3 worth of assets which they own. Hedge funds on the other hand may use higher levels of leverage, but the danger with such tactic was exposed during the late nineties when Long Term Capital Management firm {LCTM} collapsed.
Hybrid mutual funds have actually performed better than traditional mutual funds according to Thomas Schneeweis, director of the Center for International Securities & Derivatives Markets at the University of Massachusetts at Amherst. Schneeweis said, “Hybrid mutual funds do offer some return opportunities and characteristics that similar hedge funds provide.� The study examined the performance of 12 hybrid mutual funds during the years of 1998 and 2003. Half of the funds in the study outperformed the hedge fund indexes upon which those funds were constructed.
It is however unlikely that these hybrid mutual funds will replicate the double digit performance of hedge funds during the 1998 to 2003 period. Hedge funds still hold unmatched advantages over hybrid mutual funds through the utilization of advanced trading tactics which are still off-limits to hybrid mutual funds.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: [email protected]
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