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Hedge Funds: The Types Available To You

3 September 2018 No Comment

Out of all of the investment options that you might stumble across, hedge funds are the ones in which you will probably walk away from with the most questions. The fact that they are unregulated in some parts of the world means that a lot of research is needed to get your head around them, and this is also probably one of the reasons why hedge accounting in the UK has become so in-demand over the years.

As today’s headline might have already suggested, this post is all about the various types of hedge funds that are open to you. We will now look at some of these in-detail to show exactly how you can pledge your money when it comes to investments of this ilk.

Event driven funds

Let’s start with one type of hedge fund that is particularly easy to understand. Everything is pinpointed in the name here; event driven funds are based on events making some form of impact on the market.

So, what type of events are we referring to? This might revolve around natural disasters, right the way through to political developments – the scope is pretty wide. When these events happen, the price of the funds change and this is where a savvy investor can act and purchase stock at an efficient price.

Distressed funds

This is another one of those funds that is a little easier to understand than most. Put simply, this involves purchasing stocks in distressed companies. These companies might be on the verge of bankruptcy, or even carrying large amounts of debt. The beauty about this, in the eyes of the investor at least, is that they can be purchased for much lower prices. On the flip side, there is a lot of risk, and if the company does collapse or their situation worsens you can be left in an even more difficult position.

Emerging market funds

Next on the list are funds which are based in developing countries. A developing country tends to be classed as one which has a low to medium per capita income. Naturally, this means that they aren’t as lucrative as other countries in the world, but at the same time if they do develop accordingly your stock can soar in price.

Unsurprisingly, the risk levels with these funds are pretty high. Emerging markets are volatile and they are very susceptible to even the slightest political movement. As such, they carry a lot of risk, even if the rewards can be enormous.

Short-only funds

This is one of those types of investments which has come in the news recently, with a lot betting against Tesla in this manner. We say betting “against”, for the simple reason that investors are hoping that the value of the company plummets. This is because they are planning to short sell when the prices do fall.

Again, the rewards here can be tremendous. At the same time, a degree of caution needs to be exercised, for the simple reason that if the market swings the other way you can be posting big losses.

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