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Hedge Mutual Funds - Making Sure Your Mutual Fund Hedge is Working

In volatile market times like those we have had recently, there is a natural increase in interest in hedge mutual funds as a way to protect capital in turbulent times. We surveyed a sample of hedge mutual funds in the past, highlighting a sample of funds that use a variety of techniques to mitigate market risk as part of a hedging strategy. Recently ING has introduced another variant of hedge mutual funds, the ING 130/30 Fundamental Research fund.

The ING 130/30 Fundamental Research gets its name from its basic investment strategy. The intent of the the fund is to be 130 percent on the long side, and 30 percent on the short side, so that it is basically long 100 percent. As such it should qualify as a long/ short fund. But instead of targetting a market neutral position of being long a net 0%, they target keepiing a net long exposure. But if their selection criteria are correct, it should still outperform the market with somewhat less volatility.

The proof is in the pudding. The chart below (taken from http://finance.yahoo.com) shows the results over the life of the fund (blue line) compared to the S&P 500 (red line).

iotax_2.jpg

Basically the fund is not outperforming the S&P, but it seems to have captured all the volatility of the S&P 500. Bottom line, if you are looking at a long/ short hedge mutual fund as a way to capture a better risk adjusted performance, this fund is not living up to the billing.

Filed under Hedge Funds

Comments on Hedge Mutual Funds - Making Sure Your Mutual Fund Hedge is Working »

November 25, 2007

Julius @ 1:37 pm

If I bought bonds now. What will it be worth at Maturity?? Will it be better than investing on stock?

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