San Francisco Gate – Reflecting the growing popularity of long-short mutual funds, Morningstar last week created a new category for them. Lipper will do so next month.
These funds take some work to understand, but if you’re tired of the same old, same old, they’re worth checking out.
Long-short funds are the poor man’s hedge fund. Both buy securities they think will go up (called going long) and bet against securities they think will fall, usually by selling them short or using more esoteric strategies.
The main differences:
Hedge funds are lightly regulated investment vehicles that require large minimum investments, often $250,000 to $1 million. They are open to a limited number of qualified — meaning wealthy — investors. The manager collects an annual fee — usually 1 to 2 percent of assets — plus a fat slice, typically 20 percent, of profits, if any. There are usually limits on when investors can withdraw their money.
Long-short funds are regulated by the Securities and Exchange Commission and are subject to the same rules as other public mutual funds. They are open to anyone who can come up with the initial investment, usually a few grand. The manager charges an annual fee, typically 1 to 2 percent of assets, but does not share in any profits. Investors can sell their shares any business day.
