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Rekenthaler Report

Mutual Funds and Risk Management

Beware of promises that cannot be fulfilled.


Last week, the SEC settled an action it had filed against Catalyst Capital Advisors for misrepresenting the risk of one of its mutual funds, Catalyst Hedged Futures Strategy. (On the day of the announcement, the fund changed its name to Catalyst/Warrington Strategic Program (HFXAX). A culprit protection scheme!)

In its official documents, the fund had presented itself as being for conservative shareholders, citing a goal of "capital preservation in all market conditions," supported by "strict risk-management procedures." Informally, the fund's management went further, telling investors that the fund's potential losses shouldn't exceed 8% because of its investment safeguards. In fact, claims the commission, "no such safeguards existed."

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