If you are intrigued by hedge funds and want a mutual fund or two that are less correlated with the market, then you are in luck. I am invested in one such fund and just came across another.
The fund I just came across is Weitz Partners III Opportunity (WPOPX). This fund is a partially-hedged mutual fund. Wally Weitz has the discretion to short sell stocks and borrow to increase the long positions as well. Currently the fund is 18% short, 103% long, and 15% in cash. While the fund has not done well in the past two months, very few long/short funds have. The fund’s short positions should give it some downside protection, and if they are good shorts, could juice returns even in an up market. The modest proportion of short selling and leverage in this fund means that even if the short-selling is not very good, the fund will still do okay. This fund has a 1.21% expense ratio, very low for a fund that does short selling.
The other fund I would recommend is the Merger Fund (MERFX). I have been invested in this myself for a couple months. The fund practices merger arbitrage–buying the shares of companies that have agreed to be bought out. This strategy is risky if you or I were to do it, because there is a risk of a large loss with each trade and only a small possible gain. However, a fund such as The Merger Fund is diversified enough so that its returns are not very volatile. This fund should not outperform the S&P 500 in the long run, but it is a consistent performer with low-volatility. It is high-turnover, which means that it belongs in an IRA. Consider it as a replacement for a small portion of your bond portfolio. The fund’s expense ratio is 1.37%.
Disclosure: I am invested in MERFX.