Hedge Funds Pigs in Mutual Fund Blankets
The Mutual Fund Beauty Pageant Begins
“I woke up with a pig in a blanket,” laments Martin Mull in his sad song of the same name. How often have your authors felt this same way, at least when reviewing our monthly brokerage statements. The underlying cause is often the same as well: “I drank enough ’til she looked good to me” Mull sings—only in our case, we were drinking Wall Street Kool-Aid. It can happen to anyone. But thanks to this Little Book, it won’t have to happen to you.
In this chapter, we are going to review some of the mutual funds that have crashed into the alternative space, running the hedge fund strategies we described in Chapters 10 and 11 inside the cozy cocoon of a mutual fund wrapper. We will list some notable ones here, sorted by hedge fund strategy, and then in the next chapter we will give you our picks. That doesn’t mean you can snooze through this chapter, though—your picks probably will be better than ours.
In theory, long/short managers have had an easy job recently. All they had to do was go short in 2008 and then go long in March 2009 and they would have made a killing. That one trade would have put them on the cover of Rolling Stone. The rest of the time they could have (indeed, should have) played golf. This trick was so simple that no one could do it. Almost all long/short funds lost money over this period.
We hate to keep quoting ourselves, but as we mentioned in Chapter 10, ...