Thursday, April 11, 2013

Hedge Funds - Are These Lucrative Investment Options?

Hedge FundsThe point of a hedge is to make money for clients regardless of market direction. Hedge funds will buy and hold stocks, they will sell short, as well as buy and sell options. These particular funds differ from most traditional funds, which adhere to the buy and hold concept. In these particular funds, an investor will pay a performance fee along with management fee, when it performs well.

These investments, which include foundations, college endowments, and pension funds, are valued at billions of dollars. Over one percent assets of financial institutions consists of these funds, with total assets around $2 trillion. Many large funds choose this type of fund because of their potential upside during a bull market.

These funds can give smart returns dependent on how they are positioned in the market and how strong the market is performing. If investments of this sort are leveraged well, the investor will realize size able to returns as opposed to other funds. With this in mind, one should even be cautious of the potential losses that can occur  when the wrong investment vehicle is being leveraged. In short, take your time and do your research  and analysis before choosing any type of fund. 

The crash in 2008 seemed to inspire large pension funds into direct hedge fund investing. A lot of people were hurt by the 2008 crash, lending to more hedge fund investing to recuperate some losses. The rules of hedge fund investing have become stricter since 2008, limiting participation to accredited investors, weening out the small, private investor.

A hedge fund managers uses the same information available to all investors. For instance, you did not need to be a hedge fund manager to evaluate some opportunities in Japan after the tsunami. However, the sheer size of these type of funds lends to significant research and investment opportunities that an ordinary investor does not have. However, on the same note, these large funds can sometimes find it difficult to find a place to invest billions of dollars. When this kind of fund takes a position in an equity, it changes the direction of the market.

An individual investor can profit from studying a hedge fund, being aware of where the money is going. A lot of successful investors yield high returns by mirroring a successful hedge funds investment strategy. How available that information is depends on the individual investors savvy. Again, hedge funds move the market.

By Sean F Kitt