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Fund Spy

A Fund Company Gold Rush Into Long-Short

Is it a contrarian signal?

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In the fund world, one of the best contrarian indicators is fund launches. When a bunch of fund companies launch funds in the same category, it usually means the sector is overheated, overhyped, and overpriced. There were Internet fund launches in 1999 and 2000 and global real estate launches in 2007. You can see some of the effects here.

Today, the hot category is long-short. We've seen 22 separate long-short mutual fund launches in the past 12 months. A year ago there were only 78 funds in the long-short space.

The problem with hot fund launches is that fund companies are chasing flows, which are in turn chasing performance. By the time one catches up to the other, it's usually way too late.

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.