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Don’t Get Caught by Funds of Hedge Funds Costs

A low-return environment has stifled these pricey funds, and investors would've been better served by a low-fee bond ETF, says Morningstar’s Jason Kephart.

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Jason Kephart: A low-return environment and high fees is a terrible combination for investors. Nowhere has that been more evident than a subset of the multialternative category that allocates to various hedge fund strategies.

These multistrategy funds charge on average 2% and sometimes even more in management fees. That means you've not really been getting much of a discount on the traditional hedge fund model, which charges a 2% management fee, plus a 20% performance fee.

Jason Kephart does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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