TheStreet.com – A lot has been written about “hedged mutual funds,” which use hedge-fundlike trading strategies such as short selling and leverage.
Those hybrid funds resemble mutual funds in two ways: They are subject to strict regulations and they do not charge performance-based fees. A few have proven popular with investors.
What nobody has really bothered to look at is how these vehicles compare with hedge funds in terms of performance. A recent study by the London Business School called “Poor Man’s Hedge Fund” says that the news isn’t good.
The only time these funds don’t significantly underperform hedge funds, the study found, is when they are run by hedge fund managers themselves.
The reason is simple: Hedged mutual funds don’t pay as well, says Vikas Agarwal of Georgia State University, one of the report’s authors. Another conclusion is harder to explain — hedged mutual funds also fail to outperform traditional mutual funds. One would think that with more flexibility, hedged mutual funds would do better than their mutual fund cousins. But here again, it takes skills to short, and such skills don’t come cheap.
