Fees Sap Mutual Funds Seeking Hedge Returns
Comment of the Day

June 14 2011

Commentary by David Fuller

Fees Sap Mutual Funds Seeking Hedge Returns

This tale of fund manager greed and investor gullibility from Bloomberg is posted without further comment. Here is the opening:
Altegris Managed Futures Strategy Fund, a mutual fund that allows less affluent clients to invest with some of the best-known hedge-fund commodities traders, has attracted $707 million since its start less than a year ago.

Investors in the fund lost 6 percent this year, and plummeting gold, silver and oil prices weren't the only reason. The losses also reflect fees of as much as 2 percent of assets paid to the underlying traders in addition to the fund's 2 percent management fee and 5.75 percent in upfront charges. If the fund had made a profit, as much as 35 percent of that would also have gone to the underlying managers.

Investors in U.S. mutual funds, by contrast, paid 0.8 percent in average fees last year, according to data from Morningstar.

"The fees are far higher than for less specialized strategies," said Nadia Papagiannis, an analyst with Chicago- based Morningstar Inc. (MORN) "They're promising the performance of hedge-fund managers, but what we've seen with funds of funds is that the performance is mediocre."

Altegris Managed Futures and three similar products, the MutualHedge Frontier Legends Fund, Princeton Futures Strategy Fund and Grant Park Managed Futures Strategy Fund, have attracted $1.3 billion since the end of 2009, offering access to as many as 20 prominent hedge funds that buy and sell everything from grain to gold to dollars, for as little as $2,500 in initial investment. They also bring another feature of hedge funds: high fees.
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