Protection for Stormy Markets

You can take comfort in investments that employ hedging strategies.

The hedge-fund club isn't as exclusive as it once was, thanks to the burgeoning ranks of mutual funds that emulate hedging strategies at a more palatable price. And that's good news for investors who can't stomach stock-market dives, no matter how brief they are. These funds were put to the test during the market's late-winter rout, and most barely broke a sweat.

The strategies of hedge-fund-like mutual funds vary, but their basic mission is to try to defend against market declines and still deliver decent returns. If implemented effectively, hedging strategies can produce steady returns that move out of step with the stock and bond markets. As part of a larger portfolio, hedge-like funds can serve as powerful diversifiers that reduce your overall risk. But financial planners don't recommend that they be your core holding -- at most, they should make up 15% to 20% of your investments, depending on your tolerance for risk.

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Gateway (GATEX)9.3%7.7%5.8%-1.7%0.95%$1,000
Hussman Strategic Growth (HSGFX),000
Laudus Rosenburg Val Long/Short Eqty (BRMIX),500
Schwab Hedged Equity Select (SWHIX)9.011.2--2.71.7750,000
S&P 500-STOCK INDEX11.8%10.1%6.3%-5.4%Row 5 - Cell 5 Row 5 - Cell 6

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Staff Writer, Kiplinger's Personal Finance