What strategies does a Hedge Fund employ?
Understand that the return achieved by a hedge fund manager does not necessarily rely on presiding market conditions, but is usually attributed to that manager’s ability or skill. This is because hedge fund managers try to remove some market exposure and aim to produce a positive return irrespective of market direction. They operate in fairly small areas of the market to reduce volatility by greater diversification. Some of the methods that hedge fund managers employ to achieve these ends are: Selling short: This involves selling shares without owning them, with the aim of a buy-back at a future date at a lower price, in the expectation that their price will drop. Using arbitrage: This seeks to exploit pricing inefficiencies between related securities. Trading options or derivatives: This includes contracts whose values are based on the performance of any underlying financial asset, index or other investment. Investing in anticipation of a specific event: Events can include mergers, ta