A fascinating study reveals the world’s most successful hedge funds, and below it, you'll see how you could boost your own returns by learning how they do it.
Although Hedge Funds Are Typically The Preserve Of The Wealthy, Copying Their Strategies Could Pay Dividends For You
Why 2018 Was A Terrible Year For Hedge Funds
According to an annual study, it’s been reported that in 2018, the 20 most successful hedge fund managers in the world made $23.2 billion.
That’s after their fees, which can be significant. Typically, a hedge fund charges an asset management fee 2 per cent per year, and a 20 per cent share of any gains it generates.
Whilst that sounds like a fantastic result for the hedge fund industry, to put this into perspective, all the other hedge funds generated losses of $64.2 billion net of fees.
Across the industry, it means that hedge funds lost a staggering $41 billion in 2018!
This is significant. It represents the poorest return since the financial crisis of 2008. It seems the majority were affected by the unexpected volatility of the markets in the final quarter of the year.
You can download the hedge fund report to see the names of the top 20 hedge fund managers.
Hedge Funds Invest In Just About Anything
Some common investments might include land, real estate, currencies, derivatives, and stocks. But there’s largely no limit to where they can invest.
There are a variety of hedge fund strategies. Here are some common ones:
With a focus on fundamental growth and value, these short-biased funds might focus on sectors like energy/raw materials, healthcare, and technology.
This multi-strategy style of hedge fund might include credit arbitrage, merger arbitrage, and distressed or restructuring companies.
Active trading is the name of the game here, with commodities and currencies playing into this systematically diversified strategy.
This strategy focuses on fixed income (convertible arbitrage, sovereign, and corporate) and yield alternatives like real estate and energy infrastructure.
Fund of Funds
This more conservative approach is diversified and market defensive.
What You Can Learn From Hedge Funds
Although you might not have the level of wealth required by hedge funds to become a client, you can still benefit from their work by learning what they do, looking at the sectors in which they invest, and how they’re moving the money around.
However, the strategies above are typically high risk methods, with the aim of generating a high return.
As a result, following their models might only be appropriate for a small part of your money. And of course, it’s helpful to know what the common hedge fund terms mean.
But beware. Whilst the profits can be significant, occasionally things don’t go as planned, as happened last year!
What Is A Hedge Fund
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