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Hedge Fund Strategies Differ
As each hedge fund strategy is different and offers varying returns and yields, the overall success of hedge fund strategies can largely depend on the user and on the timing and conditions of the market, which makes it difficult to make a definitive statement about which are the best strategies to follow. Read more...
However, given the vast amounts of money that are invested in this field every year, there are obviously going to be similar strategies occurring repeatedly and it is these strategies that will invariably be looked upon to be the best for any hedge fund strategist to become involved with.
Ten strategies that regularly crop up on a number of hedge fund tips and guidelines websites include:
- Aggressive Growth
- Distressed Securities
- Emerging Markets
- Fund of Funds
- Macro
- Market Neutral – Arbitrage
- Market Timing
- Opportunistic
- Multi-Strategy
- Short Selling
The success of these strategies will greatly depend on the amount of time and effort, as well as investment level; an investor is willing to put into place in their investment as hedge fund strategies tend to be more elaborate than many people realize.
Diversification is a trait that should be followed by the majority of investors unless they have a genuinely skill and talent in picking which funds are expected to produce a sizeable return. Although this strategy will reduce the standard deviation of the return from the portfolio, it will help safeguard the investor and can bring the activity of the funds more into line with what is expected from the stock market. Diversification strategies including investing in a variety of industries are vital for risk-averse investors to use as it gives them the better chance of minimizing potential losses as focusing on one industry creates the opportunity for massive losses as if one fund is struggling in an industry, there is a strong chance that the entire sector may be struggling. This means that strategies such as Fund of Funds or Distressed Securities may have a low volatility but are likely to suit the needs of inexperienced investors.
Another way to reduce the level of risk involved is to choose a strategy that focuses on events as opposed to being market driven, as the predictability of these strategies such as Opportunistic will relate to a specific firm or market as opposed to the entire economy, which should allow an investor to have a greater chance of forecasting the future events. Minimizing the risk is the key strategy for investors who would like a consistent return without the fear of huge losses but obviously, this approach is not suitable for all investors, who may seek a higher return.
Having an inside knowledge or being privy to the expectations of a sector or industry can greatly assist in predicting the future trends in that market which can give any investor an edge and is also the basis for employing an hedge fund specialist to make investments on your behalf. Strategies such as Emerging Markets or Market Timing place great importance on being able to predict the future events in a sector and although this brings a high level of risk, it is evident that the returns available from these strategies will entice many investors.
Another strategy which can bring large returns is the Aggressive Growth strategy and again this strategy is best exploited by those with specific knowledge of a specialist industry or with an understanding of the expectations of the future behavior of the market.
The varieties of hedge fund strategies that are available is vital in enticing so many potential investors to the market and this variety means that although there is no one set way to guarantee high returns, it is possible for each type of investor to follow a plan that leaves them comfortable with their investment and could provide them with the level of return they are hoping for.
