samfarrell
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(Again, both articles are US focused)U.S. mutual funds are among the most strictly regulated financial products. They are subject to numerous requirements designed to ensure they operate in the best interests of their shareholders. Hedge funds are private investment pools subject to far less regulatory oversight.
thanks for the info Tiger
People with the time and inclination maybe would be better off setting up their own trading clubs , manage their own money. hedge funds seem to be an elaborate version of this
thanks for the info Tiger
People with the time and inclination maybe would be better off setting up their own trading clubs , manage their own money. hedge funds seem to be an elaborate version of this
Hedge funds are a low risk asset. If you leveraged Hedge funds to the same risk as the market then Hedge funds have consistently outperformed the market historically.
Hedge funds on the other hand, are 50% long and 50% short, hence the term hedge in the name.
Hedge funds are a low risk asset.
Hedge funds are less regulated then mutual funds, This also means that they are a lot less transparent then mutual funds and there have been some notable blow ups.
Passive investors should always look to get the beta return by investing in index funds or ETFs. Beta investing is positive sum, the market has risen historically.
Mutual funds are long only so they get the beta return and attempt to get alpha returns as well. Once fees are taken into account the majority fail to get a positive alpha return for their clients, and hence under perform the market.
Hedge funds on the other hand, are 50% long and 50% short, hence the term hedge in the name. They get zero beta return. They attempt to achieve alpha returns and, because they have the best managers, usually do. Hedge funds are far less volatile then mutual funds/index funds/ETFs because they suffer much, much less of the volatility of the market (which is approx 17-18% standard deviation I think).
Hedge funds are a low risk asset
I think these statements are misleading. Hedge funds are not "low risk", there is a very real chance of incurring significant loss of capital as there is with any highly leveraged vehicle. Most hedge funds underperform the market. To all intents and purposes, they are the market now, it is impossible for them all to outperform.
What you failed to mention is the huge fees that they charge. Usually they work on a 2/20 rule - they charge 2% management fees on capital invested and keep 20% of profits generated. Only the very best hedge funds can return alpha returns for investors with these kinds of fees.
I agree that the term hedge is misleading - a lot of them now specialise in 'Special Situation' companies (amongst other things)...there is no hedging going on at all, and they are often high risk.
Well, thats just not true.Hedge funds on the other hand, are 50% long and 50% short, hence the term hedge in the name.
Do you not contradict yourself there? I would never describe hedge funds as low risk assets. I don't know many people who would.Hedge funds are a low risk asset.
Hedge funds are less regulated then mutual funds, This also means that they are a lot less transparent then mutual funds and there have been some notable blow ups.
That is a gross generalisation for two reasons - one, index funds or ETF's are not the only vehicle for passive investors and are not suitable for all investorsPassive investors should always look to get the beta return by investing in index funds or ETFs. Beta investing is positive sum, the market has risen historically.
You are correct; however if you do not have the time/experience to pick outperforming mutual funds then index funds/ETFs are the best alternative. Unless you want to invest in something other than equities or you have a very short time frame.
and two Beta investing is only positive sum if returns are greater than costs and also you're assuming that markets will continue to rise.
Why else would you invest in equities unless you expected markets to rise? The reason index funds are so good is because they have extremely low fees, over significant lengths of time beta returns should far exceed fees.
Further gross generalisation - mutual funds are not all long only and I would like to see the backup for your claim that the majority fail to get positive alphaMutual funds are long only so they get the beta return and attempt to get alpha returns as well. Once fees are taken into account the majority fail to get a positive alpha return for their clients, and hence under perform the market.
Hedge funds on the other hand, are 50% long and 50% short, hence the term hedge in the name. They get zero beta return. They attempt to achieve alpha returns and, because they have the best managers, usually do. Hedge funds are far less volatile then mutual funds/index funds/ETFs because they suffer much, much less of the volatility of the market (which is approx 17-18% standard deviation I think).
This has got to be the daftest thing I have ever heard. Hedge funds are not 50% long / 50% short (some may be but I doubt if they are in the majority).
As far as I'm aware the majority are 50% long, 50% short.
Hedges do get beta against hedge indices.
I'm talking about standard market benchmarks such as the SP-500 for beta returns.
Can you categorically say that the majority of hedge funds achieve positive alpha? - I think not!
I don't have any papers to back it up but I'd be confident saying yes; the majority of hedge funds achieve positive alpha.
Hedges are not less volatile than non-hedges
Looks like we'll have to agree to disagree on this.
Saving the best 'till last - hedges are not a low risk assetsHedge funds are a low risk asset
I'm talking about the actually 'hedged' funds and using risk to mean volatility.
- by their definition they invest in riskier investments
I'm talking about the equity hedge funds and not specifically about the ones trading high leverage, high risk investment tools.
and are not as closely regulated as mutual funds so for the investor the risk when investing in hedges is much higher than when investing in mutuals
You are correct that hedge funds are not as closely regulated. That's a different type of risk than the one I'm talking about.
just getting back to the question, i found some good info
Key Characteristics of Hedge Funds
- Hedge funds utilize a variety of financial instruments to reduce risk, enhance returns and minimize the correlation with equity and bond markets.
- Many hedge funds are flexible in their investment options (can use short selling, leverage, derivatives such as puts, calls, options, futures, etc.).
- Hedge funds vary enormously in terms of investment returns, volatility and risk. Many, but not all, hedge fund strategies tend to hedge against downturns in the markets being traded.
- Many hedge funds have the ability to deliver non-market correlated returns. Many hedge funds have as an objective consistency of returns and capital preservation rather than magnitude of returns.
- Most hedge funds are managed by experienced investment professionals who are generally disciplined and diligent.
- Pension funds, endowments, insurance companies, private banks and high net worth individuals and families invest in hedge funds to minimize overall portfolio volatility and enhance returns. Most hedge fund managers are highly specialized and trade only within their area of expertise and competitive advantage.
- Hedge funds benefit by heavily weighting hedge fund managers’ remuneration towards performance incentives, thus attracting the best brains in the investment business. In addition, hedge fund managers usually have their own money invested in their fund
I would like to see the backup for your claim that the majority fail to get positive alpha
Conceivably the majority of mutual funds could get positive alpha, but only if the non-mutual fund part of the market got negative alpha. There's no reason to think this would be the case.I would like to see the backup for your claim that the majority fail to get positive alpha
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