Scott Tominaga Sheds Light On Important Hedge Fund Strategies
Over the years, hedge funds have become among the most popular choice for alternative investments among savvy investors. This system allows an investor to gain profits by using market opportunities to their advantage in quite less time and moderate risk involvement. Scott Tominaga points out that due to certain advantageous characteristics of this investment tool, the use of hedge funds in financial portfolios has increased dramatically over the last decade. In comparison to the typical mutual funds, hedge funds allow investors to enjoy a freer rein to invest aggressively and enjoy substantial profits.
Hedge funds can be considered to be the modern, more profit-oriented counterpart for the typical mutual funds. It allows an investor to enjoy great gains in a much lesser time span by systematically leveraging diverse opportunities present in the market. Scott Tominaga underlines that hedge funds are largely private investment vehicles designed to generate positive absolute returns for a host of high-net-worth individuals, as well as institutional clients. While the risk involved in hedge funds is greater than mutual funds, it also provides a promise of delivering superior profits in lesser time.
There are a number of hedge fund strategies that are used by discerning investors today to make the best use of this investment vehicle. Scott Tominaga underlines a few of them:
- Long/Short Equity: This is the most common hedge fund strategy used by investors today. In the case of long/short equity strategy, an investor would be required to purchase stocks of companies that are expected to outperform, while selling short the stocks they think are likely to underperform. This portfolio has low correlations to the market conditions and can generate absolute returns.
- Market Neutral: This system is quite similar to the long/short equity strategy, as it is also totally independent of market performance. Investors following a neutral market strategy tend to focus on having a portfolio that minimizes or eliminates market volatility. Such funds target zero net-market exposure, or when the shorts and longs have an equal market value.
- Convertible arbitrage: In this strategy, the investors buy convertibles and short their underlying stocks. They typically buy the convertible debt of a firm and then go on to short-selling the stock of the same company. Convertible debt basically is a bond that can be converted into stock in the future. The Convertible arbitrage aims at isolating the interest coupon of convertible debt by hedging out the equity call option.
- Distressed Investing: In this system, bank loans or high yield debt of companies that are facing potential restructuring are purchased by the investors. Even trade claims, preferred stock, or even common stock of such companies can be purchased if the price is right. As the company selling the stocks is in distress, they sell them typically at a deep discount.
These were some of the common types of hedge fund strategies used today. Further details about them can easily be found on the web.
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