Hedge Fund Strategy

A wide range of hedging strategies are available to hedge funds. For example:

•selling short - selling shares without owning them, hoping to buy them back at a future date at a lower price in the expectation that their price will drop.
•using arbitrage - seeking to exploit pricing inefficiencies between related securities - for example, can be long convertible bonds and short the underlying issuers equity.
•trading options or derivatives - contracts whose values are based on the performance of any underlying financial asset, index or other investment.
•investing in anticipation of a specific event - merger transaction, hostile takeover, spin-off, exiting of bankruptcy proceedings, etc.
•investing in deeply discounted securities - of companies about to enter or exit financial distress or bankruptcy, often below liquidation value.
•Many of the strategies used by hedge funds benefit from being non-correlated to the direction of equity markets

•There is about 14 distinct investment strategies:

–Aggressive Growth
–Distressed Securities
–Emerging Markets
–Income
–Macro
–Market Neutral-Arbitrage
–Market Neutral-Securities Hedging
–Market Timing
–Opportunistic
–Multi Strategy
–Short Selling
–Special Situation
–Value
–Fund-of-Fund

We shall discuss each strategy separately.