Fidelity brings short-selling to fund investors
Fidelity, the Boston mutual-fund giant, said its fund will be known as Fidelity 130/30 Large Cap Fund, similar to funds launched at other mutual fund firms. The name refers to the strategy in which 130 percent of the holdings in its portfolio will be invested "long" -- in stocks that the manager expects will rise faster than the market overall. The money to buy the extra shares will be raised by investing the proceeds from "short'' sales.
A short sale is a bet that the price of a security will fall. To sell short, a trader borrows shares and sells them, then buys them back later at a lower price. The shares are then returned to the owner, and the difference in price represents profit. That's the theory, though in practice short-selling can be risky and most mutual fund managers are restricted from investing too heavily in the strategy.
Fidelity's new long-short fund will be managed by Keith Quinton, manager of several other Fidelity funds, including Fidelity Disciplined Equity Fund. In a statement he said the the company has 15 years of experience selling shares short through portfolios available to institutional clients. "Now we're bringing that experience to bear on behalf of mutual fund investors,'' he said.
He cautioned the fund will carry specific risks such as potentially large losses from short sales, and expenses such as interest and dividend expenses on short positions.
(By Ross Kerber, Globe staff)