May 08, 2006
Hedge fund strategies
This one’s for those who are interested in hedge funds but don’t know much about them. Let me give you a little tutorial about two hedge fund strategies.
There is a popular misconception that all hedge funds pursue an aggressive growth policy. Nothing could be further from the truth. Of course, there are those who do adopt this policy. A hedge fund that has an aggressive growth strategy, invests in equities that are expected to experience acceleration in growth of earnings per share. These equities usually Includes sector specialist funds such as technology, banking, or biotechnology. When using this kind of strategy, the hedge fund manager will hedge by shorting equities if the earnings are not up to mark or by shorting stock indexes.
Then there is the distressed securities strategy wherein the hedge fund buys equity, debt, or trade claims at deep discounts of companies in or facing bankruptcy or reorganization. Next time, we will discuss more strategies.
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