The Hedge Fund Report: Another One for the Masses

It's becoming obvious that many mutual funds have hedge fund envy.

A few weeks ago, we reported that Janus Capital(JNS Quote) is planning a new mutual fund product with many hedge-like characteristics. Now, $100 billion mutual fund giant American Century has followed suit with the launch of the American Century Long-Short Equity Fund (ALHIX).

The product will take both long and short positions to generate returns that it hopes are uncorrelated to overall market performance. The long/short feature mimics hedge fund investing, while the fund remains open-ended, available to all investors with a minimum of $2,500.

Hedge fund pros don't think highly of these kind of products. One of their criticisms is that mutual fund managers -- who specialize in picking stocks that rise, not fall -- aren't qualified to run a long/short portfolio.

Kurt Borgwardt, one of the new fund co-portfolio managers, says that his group already runs $13 billion in four long-only funds and that the switch to shorting is not a big deal. Borgwardt notes that mutual fund managers, who are usually judged according to benchmark indices, make a bearish call on every index component that they choose not to buy.

Maybe. But mutual fund managers don't have to deal with the operational headaches of covering their shorts. That, says hedge fund managers, is what makes their job so tough to learn.

Sports Book

Sports Authority(TSA Quote) announced on Jan. 23 that it will be acquired by Leonard Green & Partners for $37.25 a share at the end of June. That leaves merger arbitrage hedge funds with several ways to play the leveraged buyout.

One trade is to buy the stock outright. At a $36.42 current price, the return over four months is less than 5% annualized. This trade appeals mainly to those who believe that someone else will bid up the stock, says Troy Johnson, a trader at the hedge fund Quixote Capital.