New mutual funds successfully mimic hedge fund performance

Rydex Investments, a Maryland-based investment advisor with $13 billion worth of assets under management, said two mutual funds it launched at the end of September are succeeding in giving a broader base of investors access to hedge fund-like strategies and returns via a quantitative strategy.

In research released this week, Rydex - using the concept of alternative betas - claimed backtesting demonstrated the performance of its hedged equity and absolute return strategy funds successfully mimicked that of hedge funds between January 1994 to June 2005.

Beta is a measure of the systematic risk of a portfolio; alternative beta is a modified form of the measure that is applicable to portfolios that are not solely long. Rydex’s absolute return quantitative model had an alternative beta of 11.6, while the benchmark figure for the absolute return funds was 10.6 over the 11.5 year period.

Rydex’s hedged equity fund seeks to provide capital appreciation consistent with the risks and returns of long/short hedge funds, while the absolute return fund seeks returns similar to those produced by the hedge fund universe as a whole.

Both funds employ a variety of techniques including going short, arbitrage and leverage. Currently, the Rydex Absolute Return Strategy has $6.5 million in assets and the Rydex Hedged Equity Fund has $2.9 million.