A number of mutual funds now use some hedge fund strategies such as selling short as well as long. These “long-short” funds buy some stocks, in anticipation of appreciation, and sell other stocks short, hoping to make money when their prices fall. Other mutual funds are “market neutral,” aiming for profits in all kinds of markets.
Calamos Market Neutral Fund, for example, is run by a manager who is very knowledgeable about convertible bonds. The fund will buy a convertible bond if it seems to be underpriced, and sell short the company’s common stock. This can lock in a gain from the mispricing, whether the stock moves up or down.
Another quasi-hedge fund is Merger Fund, which invests in stocks that are involved in corporate acquisitions. In some cases, the fund will go long on one stock and short the other partner in the contemplated deal, a basic form of merger arbitrage. Such methods have given Merger Fund profits in each of its 13 years, with most years’ returns ranging between 10 percent and 18 percent.
