Japan hedge fund

 

High volatility hedge fund strategies

4.  high volatility hedge fund strategies

Continuing from the previous section on moderate volatility hedge fund strategies, the most common high volatility hedge fund strategies are:

  • Aggressive Growth hedge fund: The hedge fund manager typically invests long positions in equities with high P/E ratios and low or no dividends, often smaller and micro cap stocks that he/she expects will experience rapid growth in earnings per share. Many aggressive growth hedge funds specialize in specific sectors, for example: technology, banking, biotechnology etc. The fund manager reduces risk by shorting equities where he/she anticipates poor earnings news or by shorting stock indexes.
    Volatility: High
  • Market Timing hedge fund: The hedge fund manager allocates assets among different asset classes depending on his/her opinion of the economic or market outlook. The fund manager's success (and the fund's volatility) depend on his/her expertise in predicting market movements and timing entry and exit from markets.
    Volatility: High
  • Emerging Markets hedge fund: The hedge fund manager invests in equity or debt of emerging markets tending to have higher inflation and more volatile growth. Although Brady debt can be partially hedged by using U.S. Treasury futures and currency markets, it is difficult for the fund manager to reduce risk in many emerging markets because traditional hedging by short selling is prohibited.
    Volatility: Very High
  • Macro hedge fund: The hedge fund manager tries to profit from global economic changes, usually resulting from shifts in government policy altering interest rates which subsequently affect equity, bond and currency markets. The fund manager participates in all major equity, bond, currency and commodity markets although not necessarily at the same time and uses leverage and derivatives to increase the effect of market moves. The leveraged directional investments usually have the largest impact on performance although hedging can also be used.
    Volatility: Very High
  • Short Selling hedge fund: The hedge fund manager sells securities short which he/she believes are overvalued due to the overvaluation of the securities or the market, or in expectation of poor earnings news etc, in the expectation that he/she will reacquire the shorted securities at a lower price in the future. Often used as a hedging technique to offset long-only portfolios and by fund managers predicting the approach of a bear market.
    Volatility: Very High

5.  hedge fund of funds >>


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