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Hedge Funds for Retail Investors? An Examination of Hedged Mutual Funds

Published online by Cambridge University Press:  01 April 2009

Vikas Agarwal
Robinson College of Business, Georgia State University, 35 Broad St., Atlanta, GA 30303.
Nicole M. Boyson
College of Business Administration, Northeastern University, 360 Huntington Ave., Boston, MA 02115.
Narayan Y. Naik
Institute of Finance and Accounting, London Business School, Sussex Place, Regent’s Park, London NW1 4SA, United Kingdom.


Recently, there has been rapid growth in the assets managed by “hedged mutual funds”—mutual funds mimicking hedge fund strategies. We examine the performance of these funds relative to hedge funds and traditional mutual funds. Despite using similar trading strategies, hedged mutual funds underperform hedge funds. We attribute this finding to hedge funds’ lighter regulation and better incentives. Conversely, hedged mutual funds outperform traditional mutual funds. Notably, this superior performance is driven by managers with experience implementing hedge fund strategies. Our findings have implications for investors seeking hedge-fund-like payoffs at a lower cost and within the comfort of a regulated environment.

Research Articles
Copyright © Michael G. Foster School of Business, University of Washington 2009

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