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The main hedge fund styles

There are five main hedge fund styles representing a wide range of risk/return characteristics, each of which has a number of sub-strategies.

Illust.: The five hedge fund styles

The five styles have different drivers of performance and therefore distinctive return dynamics. This leads to comparatively low correlation between the styles and also to traditional assets.

One main benefit of hedge funds is their ability to profit from falling markets to help defend investment portfolios during periods of market crisis.

The strategies used to protect against declining markets vary depending on the investment style and type of hedge fund.

However, in general, hedge funds are able to profit in declining markets because they can:

  • capitalise on falling prices (through short selling)
  • employ dynamic trading strategies and
  • benefit from greater diversification and active asset allocation

These downside risk management attributes show that the common misconception of hedge funds being ‘high risk/high return’ is misplaced.

As with any investment, funds can lose money as well as profit. Investors should always seek professional advice before considering any investment.

Please note some of these investment solutions and/or strategies may not be offered in your jurisdiction or may significantly differ from those offered in your jurisdiction.

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