The term ‘hedge fund’ evokes a variety of associations. So what does the verb ‘to hedge’ actually mean? Hedging is the process of covering risk. Hedge funds invest their capital by positioning themselves in multiple segments of the market. Consequently, their value may not rise as fast as the markets in which they operate, but the consequence is that the effect of a downturn in the market is not drastic either.
The activities of hedge fund managers can be summarised under different trading models and investment strategies, each with different risk-return profiles:
If individual hedge funds are combined to form a so-called ‘Fund of Hedge Funds’ (FoHF), the result is an extremely diversified investment with low risk and the expectation of consistently positive returns.
Every year we at FERI analyse the investment strategies of numerous hedge funds. In the context of individual hedge fund portfolios for institutional investors and family offices, we as discretionary asset managers invest in classic offshore hedge funds, in hedge funds that have tax transparency for Germany and in UCITS hedge funds. FERI is considered a pioneer in the allocation and design of passive hedge fund investments for which a systematic qualitative rating method has been developed and a series of investable hedge fund indices has been constructed using the ARIX© indices.
Below, you will find an independent comparison of investable hedge fund indices carried out by Absolute Research GmbH.