Friday, September 02, 2005

Hedge funds versus mutual funds

Hedge Funds for All
But mutual funds, despite this financial clout, have limitations. According to Strachman, mutual funds primarily take long positions on stocks. Hedge funds, by their very nature, often hedge bets by taking short positions in stocks or establishing offsetting positions in other securities. Hedge funds also use leverage to beef up returns (or losses if the investment goes bad) — something mutual funds can't do.

"I don't think there's more risk in hedge funds," says Strachman, who also teaches a class on hedge funds at the New York Society of Security Analysts. "I'd personally feel safer in a portfolio that's both long and short the market than one just long the market."