What are Hedge Funds?

Most people know that hedge funds are like mutual funds. But, what exactly are hedge funds? Below is an explanation of what hedge funds are as well as some important information about hedge funds and hedge fund investing.

What are hedge funds?

The term hedge funds usually refers to private investment vehicles that seek above-average returns through active portfolio management. Hedge funds tend to be skill based investment strategies that attempt to obtain returns based on the unique skill or strategy of the trader. These hedge funds returns are considered "absolute," as they do not depend on the relative long-term return of underlying traditional stock and bond markets.

What are hedge funds' benefits?

Investors are attracted to hedge funds for a variety of reasons. This includes hedge funds':

• potential to deliver positive returns under all market conditions,
• low correlation to traditional asset classes, and
• access to highly specialized strategies not typically available through traditional money management.

What are hedge funds' investment strategies?

A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk.

Hedge fund strategies vary enormously many hedge against downturns in the markets especially important today with volatility and anticipation of corrections in overheated stock markets.

What are hedge funds' purposes?

The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.