Hedge Funds - Concept
5 Replies
CA Manish K Dhoot
(CA, B. Com, NCFM, CPCM)
(5015 Points)
Replied 15 August 2010
Characteristics of Hedge Funds:
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A hedge fund generally uses several kinds of financial instruments to reduce risk and add more returns. It tries to reduce the correlation with equity and fixed income markets. Many hedge funds use short selling, leverage, derivatives such as puts, calls, options, futures, etc. to accomplish their goals.
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The nature of hedge funds differs a lot in terms of investment returns, instability and risk symptoms. Normally, hedge fund strategies intend to hedge against Markey fluctuations. However, this does not mean that all hedge funds can give great advantage in unfavorable market conditions.
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The hedge fund manager’s compensation is linked to his overall performance. This stimulates the fund managers to deliver their best. At times, hedge fund managers may invest their own money in the funds that they manage.
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Most of the investors in hedge funds such as pension funds, endowments, insurance companies, private banks, and high net worth individuals invest in hedge funds to minimize their overall portfolio risk and enhance returns.
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Many hedge funds can produce uncorrelated returns i.e. returns that are not dependant on market fluctuations. Such abnormal returns from hedge funds are a great advantage in difficult market conditions.
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Highly skilled, specialized and experienced fund managers manage hedge funds. They are disciplined and diligent and believe in doing everything within there are of competency and competitive advantage.
CA Manish K Dhoot
(CA, B. Com, NCFM, CPCM)
(5015 Points)
Replied 15 August 2010
Hedge Fund Strategies:
Hedge funds use different types of strategies that reflect different kinds of risk and return trade-off:
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A macro hedge fund invests its fund assets in both the stock and bond markets. It can also invest in other investment avenues, such as currencies, in anticipation of benefits from the major shifts in some investments, such as global interest rates and nation’s economic policies.
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An equity hedge fund can invest in international markets or many concentrate on a particular domestic market. This helps the fund to invest, to hedge against the fluctuations in equity markets. This can be possible by selling overvalued stocks or stock indices in one market and buying the undervalued stock or stock indices in another market.
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A relative hedge fund tries to achieve a high return by exploiting the price difference or spread
CA Manish K Dhoot
(CA, B. Com, NCFM, CPCM)
(5015 Points)
Replied 15 August 2010
Hedge Fund Risks:
Lack of transparency
Limited liquidity
Difficulty accessing quality hedge funds
Unreliable or incomplete return data
Valuation risk
Asymmetrical nature of Hedge fund returns distributions [SKEW]
Counterparty risk [Leverage]
D.Sita Rama Rao
(C A Final)
(143 Points)
Replied 15 August 2010
pls put a detailed mail on this concept plzzz\\
reg
sitaramarao
dsitaramarao @ gmail.com
Ramalingam K
(Founder & Director - Holistic Investment Planners (P) Limited)
(21077 Points)
Replied 14 May 2014
India's Q2 GDP likely to have grown by about 4.5%: Experts
ICRA, an associate of Moody's Investors Service, said the Index of Industrial Production indicates a mild improvement in manufacturing and mining & quarrying in Q2 from the previous quarter.
Regards
Ramalingam K, MBA, CFP,
Director and Chief Financial Planner,
Holistic Investment Planners
“Best Performing Financial Advisor Award” Winners from CNBC TV18
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