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Zacks and Lighthouse Partners Join Forces to Start

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NEW YORK (–A division of Zacks Investment Research Inc., a provider of investment information and quantitative consulting, expects to launch Zacks Market Neutral Option Income Fund on Dec. 1 in collaboration with Rockville, Md.-based Lighthouse Partners Ltd. The company is not affiliated with Lighthouse Partners, LLC the hedge fund of fund manager.

The vehicle, managed by Ben Zacks, combines dividend income from a core equity portfolio with premium income from option writing, consisting primarily of covered calls on the portfolio. This is a modified version of a long/short strategy used by Zacks Investment Management for other accounts, with the option overlay added to enhance return.

“The core holdings are the same, the basic strategy is the same, but they’re going to add a little return without adding any risk,” said Bob Pellicoro of Lighthouse. Covered calls do not increase the portfolio’s risk but are expected to add around 5% to performance, he explained.

Zacks’ long/short strategy is dollar and sector neutral. It invests in approximately 200 stocks, with 100 long and 100 short positions. No position is allowed to exceed 2% of the total portfolio.

Bond Fund Substitute

The new fund is designed for conservative investors who focus on current income and long-term capital appreciation and is meant mostly for institutions. “This is for somebody who is looking for stability and current income,” says Mr. Pellicoro.

He argued that it might substitute for a bond fund–it offers similar stability with an 8% to 12% return range that is difficult for bond funds to achieve in the current economy with low interest rates.

A master-feeder structure, with U.S. and offshore components, is planned. Olympia Capital is the administrator and Bear Stearns probably will be the prime broker, but that has not yet been decided. Management and performance fees are set at 1.5% and 10%.

Lighthouse is the sub-advisor.

Chicago-based Zacks manages US$250 million in assets. The firm has been selling research to hedge funds since the 1970s and now also uses that capability for its own funds. It has a large-cap market neutral fund for U.S. investors.

Lighthouse Partners was set up by a group that was formerly responsible for the hedge fund business of Bethesda, Md.-based Beacon Global Advisors. Mr. Pellicoro and his associates first got to know the Zacks team while forming a market neutral fund for Beacon Global. Beacon Global now concentrates on private equity.

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