Ads
January 31, 2006
Key Strategy of Hedge Funds
Most of you guys who have been interested in the hedge funds industry and have tracked the sector would surely be mesmerized by the secrecy with which these funds operate. After witnessing the market return rather meager gains during 2005, there has been an increased caution and watchfulness resulting in close scrutiny of the current environment for new trading strategies.
According to our research and other market studies, one classic hedge fund strategy, which is known as the "paired trade," is gaining popularity among the pros. This strategy reportedly offers tremendous profit potential for professional traders. And this strategy is worth looking in this current hedge funds sector business environment.
According to industry analysts and experts, this strategy is gaining more prominence off late, because hedge funds have been struggling to generate the glamorous returns they need to justify charging their investors 20% of profit and a 2% management fee, as they commonly do.
There is an increased pressure on these funds to generate the sky high returns – otherwise there could be a sharp downturn in investor confidence in the investment vehicles. Specifically, since hedge funds mainly cater to the super rich segment, who only invest in this strategy to derive heightened returns despite risks.
A paired trade is exactly what it means, "a pair of trades." An investor buys shares of a company that is doing well, while short selling another company - usually in the same sector or industry - that is struggling. By purchasing shares in one company, and selling borrowed shares short in another, hedge funds can make a greater return than if they just entered a single trade. This strategy or concept of "pairs trading" is one that long/short hedge funds have been employing for a while now.
--
Did you enjoy this post?
Comments
Post a comment
Syndicate
Comments