HEDGE FUNDS STRATEGIES

Hedge Funds Strategies

Hedge Funds Strategies

Introduction

There are many definitions of hedge fund, and none of the definition is universally accepted. It is very difficult to describe in few words what hedge funds are, since we are referring to a series of investment vehicles very heterogeneous and very different characteristics. Coke Forthergill define them as

“All forms of investment funds, companies and firms that use derivatives for directional investing and / or are allowed to take short positions and / or use significant leverage through borrowing”.

The definition of a hedge fund is for private companies so that they can free to operate in a variety of markets and investments and strategies to use with variable exposure of long and short positions and degrees of leverage.

The highlight of the definitions that can make this type of investment is, first, that a hedge fund is a vehicle for investment, a collective investment scheme, although it can take different legal forms (partnership, investment fund or others).

Discussion

The variety of possible hedge fund strategies that can use by fund manager, depending on the risk of a hedge fund, can be assigned to five main categorizations:

Hedge Funds

Equity Hedge

Relative Value

Event Driven

Managed Futures / CTAs

Global macro strategy

Equity Long / Short

Bond arbitrage

Merger arbitrage

Equity Market Neutral

Convertible bonds - arbitrage

Distressed Securities

Sector long / short

Capital structure arbitrage

Statistical Arbitrage

Overview for market risk 

Relative Value (Relative Value - Market-neutral strategies)

Event Driven (Event-driven strategies)

Opportunistic (opportunity-oriented - Opportunistic Strategies)

Equity Market Neutral

Merger Arbitrage

Global Macro

Fixed Income Arbitrage

Distressed Securities

Long-Short Equities

Convertible arbitrage

Short selling (short selling)

Emerging markets (market-neutral equity investment)

low <========

=== <===== Market risk =====> ===

========> High

Long and short strategy

Long-short equity is the most widely used hedge fund strategy by the investment managers. These are purchased by the stocks; fund management this is undervalued (long position) and simultaneously sell shares that are held for overvalued (short position). Depending on the orientation of the fund's strategy are either predominantly set on undervalued shares (long bias) or overvalued stocks (short bias). The focus on undervalued stocks is the hedge fund from the most widely used method and is strongly correlated with the price movements of the various world stock exchanges (www.mcm.com).

Hedging against risk is eliminated the uncertainty of an undesirable trend in the exchange rate so as to protect themselves from any possible loss of value over time, when the transaction must take place. Practical example of an importer: Suppose an importer buys goods from U.S. exporter to a value of 2000 USD to be paid within a maximum of 1 year.

The importer, to hedge against a rise in the dollar against the Euro in 1 year, he wants to have a fixed rate today to buy a 1 year the 2000USD (forward). To do this, consult your banker.

That the banker offers the importer is to buy term (one year) the 2000USD with the following course: 1USD = 0.676 EUR, i.e. at the date of payment, importer buys 2000USD for this course said term, and whatever the spot price that would apply at that date (a ...