Hedge Fund Strategies

Hedge Fund Strategies

• In this type of Hedge Fund Strategies, Investment managers maintain long and short positions in equity and equity derivative securities.

• It can range broadly in terms of exposure, leverage, holding period, concentrations of market capitalizations and valuations.

• Basically the fund goes long and short in two competing companies in the same industry based on their relative valuations.

Long/Short Equity

• By contrast, in market-neutral hedge funds target zero net-market exposure which means that shorts and longs have equal market value.

• In such a case the managers generate their entire return from stock selection.

• This strategy has a lower risk than the above strategy but at the same time the expected returns are also lower.

Market Neutral

• In such a hedge fund strategy the stocks of two merging companies are simultaneously bought and sold to create a riskless profit.

• This particular hedge fund strategy looks at the risk that the merger deal will not close on time, or at all.

• Because of this small uncertainty, the target company's stock will sell at a discount to the price that the combined entity will have when the merger is done.

• This difference is the arbitrageur's profit.

Merger

Arbitrage

Global Macro

• This hedge fund strategy aims to make profit from large economic and political changes in various countries by focusing in bets on interest rates, sovereign bonds and currencies.

• Investment managers analyze the economic variables and what impact they will have on the markets. Based on that they develop investment strategies.

• This particular Hedge fund strategy makes profit from arbitrage opportunities in interest rate securities.

• Here opposing positions are assumed in the market to take advantage of small price inconsistencies, limiting interest rate risk.

• The most common type of fixed-income arbitrage is swap-spread arbitrage.

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