Mackenzie Investments has recently announced that all but four of its mutual funds will be permitted to short up to a threshold of 20% of NAV. This announcement is further evidence of increasing convergence between long-only and hedge fund companies. The competitive makeup of the funds business was once clearly delineated between mutual fund and hedge fund companies. These lines have been blurred as firms seek out new avenues of growth by expanding beyond their traditional product or focus. This convergence has been seen in other areas of the business, with institutional-focused firms launching fund families and fund companies targeting institutional business. Similarly, long-only managers have been dabbling in hedge funds and hedge fund firms have launched long-only offerings.
The appeal of hedging for fund companies is the ability to expand their product shelf and, in the case of short-selling within existing funds, to provide their money manager with an expanded toolkit to eke out all available alpha amid considerable market volatility and persistent low interest rates in the foreseeable future. For hedge fund managers, the allure is a larger asset base that provides more stable revenues. As Mackenzie Investments goes short, Sprott Asset Management is heading long. The company has announced that it plans to lower asset – and in turn, revenue – volatility by broadening its fund offerings. In light of these announcements, Investor Economics looked to its mutual fund and hedge fund databases to quantify this activity. Unfortunately, no count of funds that offer short-selling is available, and it is nearly impossible to know which funds allowed to short in fact do so. What is available is data on mutual funds that are classified as hedge funds. At latest count in June 2011, a total of 24 mutual funds offered by 17 mutual fund complexes were classified as hedge funds. This was up from 21 in June 2007. The corresponding assets grew from $1.4 billion to $2.6 billion. Relative to Canadian managers’ hedge fund assets, this represents a doubling of share, from 3.8% to 7.6%. In terms of total mutual funds, the hedge fund share increased from 0.18% to 0.31%. With alternative investments, particularly hedge funds, becoming increasingly popular, Investor Economics will be watching these numbers closely and reporting on the trends as they unfold in the Managed Money Advisory Service http://investoreconomics.com/issue/managed-money-advisory-service. Posted by Kevin Spraggs Kevin@iei.ca.