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From Morningstar article: Hedge strategies commonly used in alternative mutual funds like hedge funds

(Last Updated On: September 21, 2014)

From Morningstar article: Hedge strategies commonly used in alternative mutual funds like hedge funds

Morningstar article had this gem below!

Any moron does not believe you can learn from major media, is that a moron. Tell them I sent you.

Hedge strategies commonly used in alternative mutual funds include:

  • Event Driven: Based on corporate events, such as mergers, reorganizations, management changes.
  • Global Macro: Focused on macro-economic driven opportunities across numerous markets and asset classes.
  • Long-Short Equity: Seek to buy attractive companies and short sell weak companies; seeks to produce returns while helping reduce unintended or market risks.
  • Relative Value: Look for perceived pricing inefficiencies between markets, companies, or within the capital structure of a specific company.

When interest rates go up bonds will naturally suffer somewhat, as bond prices trade inversely to yield. In my view, equities generally could probably weather the environment, or at least tread water.  However, I think an alpha-seeking approach—use of hedging strategies, for example—has more potential to outperform in a rising-rate environment. Statistical analysis of the historical relationship between interest rates and alpha support this. The graph below illustrates the historic relationship between alpha levels on the Hedge Fund Research Index Fund Weighted Composite Index (HFRI FWI)2 and US five-year Treasury yield levels.

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