Hedge funds attracting interest

One new fund that’s getting some attention is the Mackenzie Alternative Strategies Fund. It invests in a portfolio of hedge funds, including many that you’ve probably never heard of like Green River Offshore Fund, Titan Volatility Fund, Northstar Offshore Fund, etc. The goal is to achieve an above-average rate of return regardless of what the stock markets are doing and so far the fund has succeeded in achieving exactly that with an 8.1% return in 2001. Unfortunately, you have to have a fat wallet to participate; the initial entry fee is as high as $150,000, depending on where you live. However, if you’re an Ontario resident and qualify under that province’s new “sophisticated investor” rules, which are based on net worth and/or income, you can buy in for as little as $25,000.

If that’s still too rich for your blood, take a look at the Newcastle Market-Neutral Trust (NMN.UN), a closed-end fund that trades on the Toronto Stock Exchange. It also invests in a portfolio of hedge funds. Recently, it was trading in the $18 range, and it hasn’t shown much movement over the past year in terms of unit value. However, it offers a steady inco stream, which is targeted to be $0.40 per unit each quarter. Recent distributions have actually been well in excess of that.

Just remember that hedge funds, while supposedly lower risk than equity funds, have a spotty record. Some have been very volatile. So don’t over-commit to this type of security unless you’re familiar with how they work and the potential risk involved.

Adapted from the Feb. 2002 edition of Mutual Funds Update, a monthly newsletter published and edited by Gordon Pape.