| Hedge Funds are a bit funny; you have to pay 3 | | | | are often designed to mimic mutual funds, but at |
| to 4 percent for management fees and other | | | | a much lower broker's fee. Look-alike funds mimic |
| fees, plus about 20 percent of the profit, yet | | | | ETF's relationship to mutual funds, by running |
| more and more people are crazy about them. For | | | | profiles of the investment strategies of various |
| many years average hedge fund returns were 11 | | | | hedge funds and mimicking them. Then the broker |
| percent according to Business Week, but now the | | | | fee is only 1 or 2 percent, and there is no |
| returns have become lower on the huge amounts | | | | whopping 20 percent profit fee. These look-alike |
| invested in hedge funds. Maybe there is too much | | | | funds are definitely around, and if you ask your |
| competition. Many smaller investors are involved in | | | | broker about them or do a few Google searches, |
| hedge funds through fund of fund groups, which | | | | you can get them. Although hedge funds total |
| require as little as a $25,000 investment, as | | | | about $1.5 trillion in invested funds and mutual |
| opposed to a $1 million investment directly in a | | | | funds total much more money, about $8 trillion, |
| hedge fund. A fund of funds is a mutual fund that | | | | hedge funds have an increased weight because of |
| invests in several different hedge funds. This | | | | their use of leverage. At a ten to one ratios the |
| gives an opportunity for smaller investors, but the | | | | effective investment power of the hedge funds |
| fees are higher, since there's one more level of | | | | can be greater than mutual funds. |
| management to deal with. Altogether there is | | | | To tell you the truth, if you read the financial |
| believed to be $1.5 trillion in hedge fund money in | | | | press, it is a bit of a mystery what exactly the |
| about 8,000 different hedge funds. They are | | | | frenzied attraction to hedge funds actually is. |
| under increasing pressure to be regulated after | | | | They are invested in a combination of derivatives, |
| the largest collapse of a hedge fund ever, the | | | | mergers and acquisitions, selling short and some |
| Amaranth fund, which cost investors over $6 | | | | murkier deals in the "deregulated universe". The |
| billion. | | | | danger is, as predicted by some soothsayers in |
| The other big thing hitting the markets is | | | | 2005, that some funds will over-leverage and |
| look-alike hedge funds, sometimes called ARFs | | | | take excessive risks and go bust. That is exactly |
| (Absolute Returns Funds). These are similar to | | | | what happened to Amaranth hedge fund that had |
| what ETFs, Exchange Traded Funds have been to | | | | a $6 billion plus blowout on the oil futures market. |
| mutual funds. ETFs are a basket of securities that | | | | |