Archive for February, 2007:
Introduction to Hedge Fund
Although there is no universally accepted definition of the term hedge fund, the term has evolved over time to include a multitude of skill-based investment strategies with a broad range of risk and return objectives. The common element among these strategies is the use of investment and risk management skills to seek positive returns regardless of market direction.
Hedge funds are an exciting innovation to the range of professionally managed investment vehicles that have brought sophisticated investment strategies and a new sense of excitement to the investment community. They can serve as an important risk management tool for investors by providing valuable portfolio diversification. One might define a hedge fund as an information-motivated fund that hedges away all or most sources of risk not related to the price-relevant information available for speculation.
Hedge funds use a wide variety of investment styles and strategies. Even among hedge funds that purport to use the same investment strategy or invest within the same asset class, there is a wide range of investment activities, performance and risk levels. Because the investment activities of hedge funds are so diverse, the hedge funds assigned to a particular investment category are likely to exhibit less similarity than more traditional investment vehicles, such as registered investment companies.
The investment strategies are typically designed to protect investment principal and engage in a variety of investment techniques that include fixed income securities, convertible securities, currencies, exchange-traded futures, over-the-counter derivatives, futures contracts, commodity options and other non-securities investments in order to generate specific risk-return profiles.
Strategies may be designed to be market-neutral (very low correlation to the overall market) or directional (a “bet” anticipating a specific market movement). Selection decisions may be purely systematic (based upon computer models) or discretionary (ultimately based on a person). A hedge fund may pursue several strategies at the same time, internally allocating its assets proportionately across different strategies.
Hedge funds are often classified according to investment style including following categories: relative value, event-driven, equity hedge funds, global asset allocators and short selling. Within each style category, funds are then classified according to the underlying markets traded. For example, within the relative value style classification, there are a number of sub-groups, including equity market neutral, fixed income arbitrage, convertible arbitrage, credit arbitrage and statistical arbitrage.
Various hedge fund return opportunities stem from the expanded universe of securities available to trade and the strategies that can be employed. Funds can access both financial and non-financial (commodity) markets and can easily take long, short, spread, and option positions in any of these markets. Expanding the set of investment opportunities results in providing diversification benefits to a portfolio that cannot be replicated through traditional stock, bond, and real estate investment strategies.
For alternative investments, such as hedge funds, to grow as an investment alternative, individuals need to increase their knowledge and comfort level as to their use in investment portfolios. The logical extension of using investment managers with specialized knowledge of traditional markets to obtain maximum return/risk tradeoffs is to add specialized managers who can obtain the unique returns in market conditions and types of securities not generally available to traditional asset managers; that is, hedge funds. In addition, investors must compare the unique returns available to each of the hedge fund styles to insure that the particular style does not duplicate existing investment opportunities.
About the Author:
Carlo Scevola ;
President, CEO & Chairman;
Carlo Scevola & Partners;
Director, Resolute Capital Growth Fund;
Hedge Fund;
info@rescgf.com
How To Select Mutual Funds
If you are new to investing, you may have heard of mutual funds but do not know exactly what they are or how to select the right one. A mutual fund is a collective investment security, and there are many different types. It may consist of a mix of several different types of investment vehicles, such as stocks, bonds, or derivatives, or it may consist of nothing but stocks that are part of a certain sector of the economy, or it could be just bonds.
For example, there are mutual funds that consist of nothing but technology stocks. There are also funds that are comprised of stocks that have a similar market capitalization (such as mid-cap funds, large-cap funds, or small-cap funds). And some might contain several different types of securities (such as stocks, bonds, etc.) that all fall within the same risk classification (high-risk, medium-risk, low-risk).
Just like stocks, mutual funds have a price per share, also known as the Net Asset Value (NAV). The NAV is calculated by dividing the total value of the fund divided by the number of shares outstanding. As with stocks, the price fluctuates on a daily basis and it can be sold just like any other security.
When deciding what fund to invest in, you need to consider your investment goals. Are you looking for long-term capital appreciation, or would you prefer to receive immediate income from your investment? You also need to evaluate your risk tolerance. Are you willing to take a chance on a speculative fund to potentially receive a better return, or is capital preservation a high priority?
If capital preservation is your goal, then you should consider a mutual fund that consists of low risk equities and conservative bond and money market instruments. If you want a mix of investments, then you should look for a balanced fund. If you want explosive capital appreciation, then you should consider a high-risk common stock or high-yielding bond fund.
They are different than stocks when it comes to fees and expenses. As with stocks, funds are subject to capital gains taxes. But a fund is sometimes subject to a front-end and/or back-end load. If there is a front-end load, that means that a percentage of the initial investment is automatically deducted to pay for commissions to the fund. If there is a back-end load, the investor must pay a fee when the security is sold.
Also, there is a 12b-1 fee that is often deducted to pay for advertising expenses incurred for the marketing of the fund to the public. Sometimes there is no 12b-1 fee, it depends. Investors might be unaware of the 12b-1 fee because it is sometimes deducted from the share price, so in a way, it is an invisible fee.
I hope this introduction to mutual funds will help you make some decisions regarding your investments. There are literally thousands of different funds available, and brokerage houses often have their own set of funds that they create for sale to their customers. Talk to your broker and see if he or she can help you identify the best investment vehicle for you. Just make sure you review the fee structure of the mutual fund you are interested in before you invest.
Article Source: http://www.articlewheel.com
Jim Pretin is the owner of www.forms4free.com, a service that helps programmers make a free HTML form.