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According to an article in the New York Times, MIT finance professor Andrew Lo has developed a mutual fund that provides hedge-fund-like strategies for the average investor. Its minimum investment for regular accounts is $2,500.
Called the Natixis ASG Global Alternatives [GAFAX
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], this mutual fund essentially uses formulas -- and very high concept math -- to copy common bets that hedge funds are making.
“There are 8,000 hedge funds, and if you average them, you get the most important market opportunities,” Lo says. “We’re using them as an information source to tell us whether it’s time to go long or short on equities or to focus on fixed income.”
How does he do it?
Specifically, Dr. Lo and his team developed “mathematical models (that) discern the common bets that hedge funds have made — their betas, in technical terms.” Lo and his staff then use futures and forward contracts to invest in the stock, bond, commodity and currency markets to replicate these betas,” explains the Times.
And so far so good. From September through June, Dr. Lo’s fund returned 0.19 percent. The S&P 500 declined 20%.
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Here’s a little more information:
Natixis ASG Global Alternatives A (GAFAX)
Inception Date: September 30, 2008
Net Expense Ratio: 1.64
YTD Returns: 4.86% as of 7/26/09
Sources: Natixis Funds, Morningstar
What's the bottom line? Returns aren't guaranteed. In fact, your entire investment could be lost. In terms of diversification, however, it may offer opportunities that would otherwise be hard to find.
Want to hear more? Check out our interview with Andrew Lo. Watch the video now!
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Trader disclosure: On July 27th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (POT), (AA), (BAC), (AAPL), (FXI), (SBUX); Seymour's Firm Is Short (PBR); Najarian Owns (UNH) Calls; Najarian Owns (BTU) Calls; Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (INTC) Call Spread; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) & Short (MS) Calls; Najarian Owns (MSFT) & Short (MSFT) Calls; Najarian Owns (V) & (V) Short Calls; Najarian Owns (WNR); Najarian Owns (YHOO) Call Spread; Terranova Owns (MCD), (AMZN), (MSFT); Finerman Owns (RIG); Finerman's Firm Owns (MSFT), (NOK), (PBR), (RIG), (TBT), (WMT); Finerman's Firm And Finerman Own (BAC) Preferred Shares; Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Finerman's Firm Is Short (USO), (IJR), (IYR), (IWM), (MDY), (SPY)
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