Some of the richest people on the planet manage hedge funds, so it could be worthwhile to find out what they do and how they do it, summarised in this excellent illustration below
Whether You’re Curious About The Mysterious World Of Hedge Funds Or A Seasoned Hedge Funds Investor, How Many Of The 48 Terms In The Illustration Below Do You Know?
Understanding Hedge Funds
For many investors, hedge funds appear to be shrouded in mystery. There are a couple of reasons for this.
The first thing is that the best hedge funds are extremely careful about protecting their ideas and tactics, because they provide an important competitive advantage for making profits.
The second thing is that there’s a psychological reason for the secrecy. You see, hedge funds want to appear incredibly complex and sophisticated, so that accredited investors will part with their money in order to get exposure to them.
While tactics deployed by hedge funds are often intricate and extremely lucrative, understanding how they work is not as impenetrable as it may seem.
The illustration below highlights 48 terms to help you get to grips with the mysterious world of hedge funds.
It covers essential ideas around how hedge funds make their bets, including arbitrage, hedging, pairs trading, alpha, and beta. The hedge funds illustration also looks at hedge fund terms around measuring performance and risk, as well as words that describe fee structures and payouts.
Nine Strategies Used By Hedge Funds
You’ll find an introduction to hedge funds on SIPPclub, covering five common traits they share. There are at least nine recognised strategies operated by hedge funds that make them successful:
1 Long/Short Equity Strategy
2 Market Neutral Strategy
3 Merger Arbitrage Strategy
4 Convertible Arbitrage Strategy
5 Capital Structure Arbitrage Strategy
6 Fixed-Income Arbitrage Strategy
7 Event Driven Strategy
8 Global Macro Strategy
9 Short Only Strategy
More information on each of these strategies can be found in this article on hedge funds.
48 Terms You Should Know About Hedge Funds
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Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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