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Hedge Fund Frenzy

Hedge Funds are a bit funny; you have tobut at a much lower broker's fee.
pay 3 to 4 percent for management feesLook-alike funds mimic ETF's
and other fees, plus about 20 percent ofrelationship to mutual funds, by running
the profit, yet more and more people areprofiles of the investment strategies of
crazy about them. For many years averagevarious hedge funds and mimicking them.
hedge fund returns were 11 percentThen the broker fee is only 1 or 2
according to Business Week, but now thepercent, and there is no whopping 20
returns have become lower on the hugepercent profit fee. These look-alike
amounts invested in hedge funds. Maybefunds are definitely around, and if you
there is too much competition. Manyask your broker about them or do a few
smaller investors are involved in hedgeGoogle searches, you can get them.
funds through fund of fund groups, whichAlthough hedge funds total about $1.5
require as little as a $25,000trillion in invested funds and mutual
investment, as opposed to a $1 millionfunds total much more money, about $8
investment directly in a hedge fund. Atrillion, hedge funds have an increased
fund of funds is a mutual fund thatweight because of their use of leverage.
invests in several different hedgeAt a ten to one ratios the effective
funds. This gives an opportunity forinvestment power of the hedge funds can
smaller investors, but the fees arebe greater than mutual funds.
higher, since there's one more level ofTo tell you the truth, if you read the
management to deal with. Altogetherfinancial press, it is a bit of a
there is believed to be $1.5 trillion inmystery what exactly the frenzied
hedge fund money in about 8,000attraction to hedge funds actually is.
different hedge funds. They are underThey are invested in a combination of
increasing pressure to be regulatedderivatives, mergers and acquisitions,
after the largest collapse of a hedgeselling short and some murkier deals in
fund ever, the Amaranth fund, which costthe "deregulated universe". The danger
investors over $6 billion.is, as predicted by some soothsayers in
The other big thing hitting the markets2005, that some funds will over-leverage
is look-alike hedge funds, sometimesand take excessive risks and go bust.
called ARFs (Absolute Returns Funds).That is exactly what happened to
These are similar to what ETFs, ExchangeAmaranth hedge fund that had a $6
Traded Funds have been to mutual funds.billion plus blowout on the oil futures
ETFs are a basket of securities that aremarket.
often designed to mimic mutual funds,



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