May 09, 2006
Hedge fund strategies
Today, I will continue on the topic of hedge fund strategies, their types and differences. Now there are some among you who are probably wondering why we need to know about hedge fund strategies. Well, one of the simplest and most basic reasons to study them is because it helps you know the difference between various hedge funds. Investment returns, volatility, and risk vary largely among the different hedge fund strategies. There are some strategies, which are not correlated to equity markets and are yet capable of delivering consistent returns with extremely low risk of loss. And then, there are others that may be as or more volatile than mutual funds. In case you want to have a successful run in the industry, you should be able to recognize these differences and blend various strategies and asset classes together to create a more stable long-term investment return.
Most hedge funds primarily aim to reduce volatility and risk while at the same time preserving capital. And irrespective of the market conditions, they want to consistently deliver positive returns. This is quite a tall order and hence it makes it doubly interesting to know how you can manage the volatile with the stable to ensure consistent returns.
And one final thing. There is a common belief or should I say misconception that hedge funds are volatile by nature. People who don’t know much about these funds believe that hedge funds use global macro strategies and use lots of leverage to place large directional bets on stocks, currencies, bonds, commodities or gold. Sadly, the reality is not so romantic. Less than 5 percent of hedge funds can claim to be global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all. And most importantly, many funds use no leverage.
--
Did you enjoy this post?
Comments
Post a comment
« Hedge fund strategies | Main | ‘Hedge funds not as risky as private equity’ »
Recent Comments