Hedge Fund Strategies Seek Wider Clientele

For some time now, the distinction between hedge funds and some mutual funds has been waning. Two new offerings should help that process along.

Janus(JNS), the Denver money manager with $148 billion under management, is preparing to launch the Janus Advisor Long/Short Fund this spring. Pending clearance from the Securities and Exchange Commission, the new fund would be permitted to make both bullish and bearish bets on stocks, a hallmark of hedge fund investing.

Separately, Morningstar, the mutual fund rating service, is readying a new category for mutual funds employing a significant percentage of short sales, another sign that the trend is gaining momentum.

Combined, the two developments reflect a rising appetite for alternative investments in the retail world, and a desire among mutual funds to feed it.

"We believe we can deliver strong results for our shareholders," says Shelley Peterson, a Janus spokeswoman. "There is a growing demand for hedge-like alternatives."

The new Janus fund will take long and short positions in domestic and foreign equity securities for a minimum investment of $10,000. Operating expenses are expected to total about 1.99% of assets.

In comparison with a true hedge fund, Janus's offering is conservative. There will be a greater allocation to long positions than to shorts, and shorting will not be meant to drive performance, Peterson says.

Yet by using both long and shorts, the fund fits into the "absolute return" category of investments, or those seeking positive returns regardless of overall market performance. That's been the goal of hedge funds since their inception.

Janus is not the first asset manager to roll out a hedge-like mutual fund, although it is among the biggest. Another is Franklin Templeton Investments, which runs the (FUSLX)Franklin U.S. Long-Short Fund .

With the growth of those hybrid funds, Morningstar will add a new category to its mutual fund collection, beginning in March. It will regroup mutual funds that make "substantial" use of shorting strategies. The shorting should be "essential" to the strategy, although there is no official ratio. The research firm has identified about 30 such funds.