hedge fund strategies
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For full text article go to : http://www.educorporatebridge.com/hedge-fund/hedge-fund-strategies/ This article on Hedge Fund Strategies, list down various strategies that are used by an Hedge fund ManagerTRANSCRIPT
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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