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What types of investment Hedge Fund invest in?

Updated: Sep 18

Anything that makes money! Well, that's what every investors want for their investment, even for the hedge fund managers, it means they have a bonus to take back home.

A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction and risk management techniques in an attempt to improve performance, such as short selling, leverage, and derivatives.



Remember to check out my other posts to know about hedge fund, and what Mr. Alfred Winslow Jones strategy was: https://www.entailholdings.com/post/what-is-a-hedge-fund


The concept for Mr. Alfred Winslow Jones was simple: Investment research turns up expected winners and losers, so why not bet on both? Take long positions in the winners as collateral to finance short positions in the losers. The combined portfolio creates more opportunities for idiosyncratic (i.e. stock-specific) gains, reducing market risk with the shorts offsetting long market exposure.


Long/short equity is basically an extension of pairs trading, in which investors go long and short on two competing companies in the same industry based on their relative valuations. It is a relatively low-risk leveraged bet on the manager's stock-picking skills.


Now, there are information that accredited investors can research on before deciding on the hedge fund to invest in. Beside shows a published bulletin by USA Securities and Exchange Commission (SEC) on Hedge Funds.


The Securities and Exchange Commission (SEC) is a U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.




Source: The Securities and Exchange Commission (SEC)


For the full access to the article, click here:

ib_hedgefunds
.pdf
Download PDF โ€ข 618KB

How does it works?

Think of this: if SNAP looks cheap relative to PINTEREST, a pairs trader might buy $100,000 worth of SNAP and short an equal value of Ford shares. The net market exposure is zero, but if SNAP does outperform PINTEREST, the investor will make money no matter what happens to the overall market.


Let's suppose PINTEREST rises 20% and SNAP rises 27%. The trader sells SNAP for $127,000, covers the PINTEREST short for $120,000 and pockets $7,000. If PINTEREST falls 30% and SNAP falls 23%, they sell SNAP for $77,000, cover the PINTEREST short for $70,000, and still pocket $7,000. If the trader is wrong and PINTEREST outperforms SNAP, however, they will lose money.

KEY TAKEAWAYS

  • Hedge funds are versatile investment vehicles that can use leverage, derivatives, and take short positions in stocks.

  • Because of this, hedge funds employ various strategies to try to generate active returns for their investors.

  • Hedge fund strategies range from long/short equity to market neutral.

  • Merger arbitrage is a kind of event-driven strategy, which can also involve distressed companies.

Source: https://www.investopedia.com/


Does it sounds like a mutual fund or exchange traded fund to you? You are not the only one. However, hedge fund aren't limited the same way as a mutual fund. They more often employ aggressive investment strategies, like leveraged, debt-based investing and short-selling, and they can purchase types of assets other funds canโ€™t invest in, like real estate, art and currency.


I will talk about Is Why you should join this elite class, the hedge fund. in my next article.


Entail Holdings is a hedge fund platform, if this article adds value to you and you would like to find out more about Entail Holdings Hedge fund, what we invest in and how you would like us to help you on your investment, drop me an email at mike.simbc@entailholdings.com


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