FOOD FOR THOUGHT
The belief underpinning all forms of alternative
investment strategies is that there are many ways to
achieve capital growth in all markets.
Unlike traditional investment approaches, which depend
mainly on asset appreciation for their performance,
the primary driver of alternative investment performance
is the skill, expertise and actions of managers.
Alternative investment managers use a diverse range
of financial tools and techniques both to generate gains
and preserve against losses in all market conditions.
The hallmark of alternative investment strategies such
as hedge funds is the pursuit of absolute returns –
that is, the quest to generate positive returns every
year, even if equity or bond markets are falling.
Traditional long only investment strategies measure
performance relative to a benchmark such as a sector
of the S&P 500 or the FTSE 100. If asset prices
fall, traditional fund managers continue to focus on
beating a declining benchmark which can result in severe
portfolio losses.
Alternative investment managers have the flexibility
to trade different asset classes and financial instruments,
while employing a variety of investment styles, strategies
and techniques in diverse markets. This freedom affords
managers rich possibilities to generate growth and protect
capital even in falling markets. Read hedge funds explained
to find out more.
A hedge fund seeks to produce absolute returns irrespective
of the underlying trends in the financial markets.
For instance, hedge fund managers employ strategies
that aim to take advantage of pricing anomalies between
related securities, engage in momentum investing to
capture market trends, or apply their expert knowledge
of markets and industries to capture profit opportunities
that arise from special situations.
The ability to use derivatives, arbitrage techniques
and, importantly, short selling - selling assets that
one does not own in the expectation of buying them back
at a lower price - affords hedge fund managers rich
possibilities to generate growth in falling, rising
and range-bound markets.
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