The two prominent reasons to include hedge funds in any investment portfolio is their ability to reduce risk and add diversification. Analysts or portfolio managers manage these alternative investments by using pooled funds along with various strategies to generate an active return for their investors. Investing in hedge funds may create wealth for the investors, regardless of overall market or index movements. Private wealth management firms have been instrumental in generating the interest of high net worth retail investors to divert some of their wealth to hedge funds. In this write-up, we would discuss the advantages of investing in hedge funds. Let's take a look. Flexibility One of the key advantages of investing in hedge funds is their flexibility. Hedge funds have fewer limitations and they apply a wide range of investment strategies that is not feasible for mutual funds. Some of the investment strategies, for example, include short selling, using arbitrage, and use of derivatives and leverage. Simply put, portfolio managers get more freedom to formulate and implement their trading strategies as compared to mutual funds. Reduced Losses Many investors invest in hedge funds as a strategy to create pooled funds and reduce risk. These funds are capable of generating bond-like steady income even during the times of low-interest rates and keeping up with inflation. They increase a portfolio stability even when the most traditional investments are either highly unpredictable or are underperforming. Enhanced Returns Hedge funds can enhance the overall returns of a portfolio. One of the strategies is to add a high-return hedge fund that can boost the returns. Portfolio managers decide their strategies based on the forecast of future prices of currencies, bonds, equities or commodities. They also often recommend maintaining a low-risk portfolio through the use of a low-volatility hedge fund. Conclusion Undoubtedly, investing in hedge is an effective way to enhance returns and reduce losses, they, however, have some drawbacks such as liquidity and transparency. Due to this, portfolio managers need to carry out the portfolio building process by selecting hedge diligently. It is, therefore, advisable to consult a reputed private wealth management firm that can help you select and manage hedge fund efficiently, and add value to your portfolio. For more details you can consult with the experts at Paradigm Capital Management - an employee owned hedge fund manager. The firm launches and manages equity mutual funds and hedge funds for its clients. Paradigm Capital Management, Inc. was founded in 1972 and is based in Albany, New York with an additional office in New York City. Call at (518) 431-3500. Or visit here: http://www.paradigmcapital.com
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