It's not a hedge fund, but for Charles Schwab ( SCH) customers looking for ways to profit in a bear market, it may be the next best thing. On Wednesday, Schwab, the nation's biggest discount brokerage, rolled out a new mutual fund that will try to beat the major market indices by going both long and short on U.S. stocks. In other words, the fund will make bets that some stocks will rise while others will fall. The new fund is Schwab's response to the growing investor demand for investment vehicles that can make money in a slumping market. And it comes nearly a year after the San Francisco-based brokerage said it was considering making hedge fund-like investments available to its 8 million customers. The debut of the Schwab Hedged Equity Fund also comes at a time that all Wall Street firms are looking for new ways to keep their customers happy and from pulling money out of the market. On the same day Schwab was announcing the new fund, it also confirmed it may have to lay off more employees because customers remain wary of investing in stocks.
Schwab's revenue numbers, but it does offer investors another way to diversify their portfolios," says Anthony Vargo, a financial planner with Legend Financial Advisors of Pittsburgh. Like a hedge fund, the new Schwab fund will have the ability to make bets that stocks will fall in price -- something a traditional mutual fund can't do. But unlike a hedge fund, which are loosely regulated private partnerships, the Schwab investment fund will be subject to the same kind of regulatory oversight as any other mutual fund. The Schwab fund has one other advantage over a hedge fund. It's a lot cheaper for investors to jump into. The minimum investment in the new Schwab fund is $25,000 -- far less than the standard $500,000 entry fee required by most hedge funds. That's why hedge funds, despite all the attention they're getting for outperforming traditional mutual funds, largely remain the stomping ground for the rich and famous. But Schwab is by no means the first Wall Street firm to try and follow the investing strategy of the $550 billion-hedge fund industry. In fact, so-called long/short mutual funds have been growing in popularity for several years. Morningstar, the mutual-fund ratings service, say there are now more than two-dozen long/short funds, but most are small funds with less than $100 million in assets.