In the investigation into May’s “flash crash,” in which the Dow Jones Industrial Average dropped 700 points in seven minutes, the culprits have been narrowed down to one little-known mutual fund based out of Kansas City. Asset Strategy Fund, run by Waddell & Reed Financial Inc., has a $27 billion portfolio—making it bigger than many hedge funds. But the oddities don’t stop there: The regulator’s investigation into the flash crash reveals Asset Strategy Fund acts like a hedge fund, part of a fast-growing breed of U.S. mutual funds that can trade in almost anything, and hedge in times of trouble. On May 6, the day of the flash crash, Waddell sold $4.1 billion of futures contracts on the S&P when the market was slightly down. Federal regulators said these trades triggered the selloff that caused the Dow's temporary but massive drop. The flash crash has undermined the rest of the world’s confidence in the U.S. market, and regulators estimate some $74 billion has been withdrawn from U.S. mutual funds as a result. Representatives from Waddell & Reed declined to comment.