Sixty-five percent of Americans do not know what a hedge fund is, according to a recent survey by Thesis Fund Management.

This will be a challenge to the mutual fund industry, as mutual funds begin adopting hedge-fund strategies for the mass-market consumer.

Hedge fund managers buy certain stocks they expect to rise in value while selling others they expect to decline. In this way they “hedge” their exposure to the broader markets. Hedge funds include diverse asset classes, including bonds, derivatives and commodities. Yet most hedge funds are limited partnerships that are only available to wealthy, accredited investors, according to Thesis Fund Management, and have been criticized for high fees, long lock-up periods and a lack of transparency.

“Hedge funds are often in the news, but when it comes right down to it, very few people know what they are,” says Stephen Roseman, chief executive officer of Thesis Fund Management, a New York-based registered investment advisor and manager of The Flexible Fund. “Now that hedge-fund-style mutual funds are available to all investors, it's time for people to gain a better understanding of how this type of product may benefit their portfolio.”

Wealthy investors have always had access to hedge funds, but now mutual funds are developing hedge-fund strategies for the average investor. The Thesis Flexible Fund combines the multi-strategy investment approach typical of hedge funds with the daily pricing, daily liquidity and overall transparency of a mutual fund.

Yet most average investors don’t even know what hedge funds are, a potential problem for the industry.

“Simply put, hedge-fund-style investing utilizes more diverse tools to manage risk and capitalize on market opportunities,” says Roseman. “Whether that means buying long, selling short or simply moving to cash when the markets warrant it, they can be a very effective way to manage risk and further diversify your portfolio.”

This article originally appeared in Financial Planning, a SourceMedia publication.

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