Hedge Fund Reader : Debunk hedge fund myths

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February 07, 2006

Debunk hedge fund myths

While the interest of investors in hedge funds is growing with the changing times, there are still certain myths that are dampening the spirit.

The most commonly heard myth states that these funds are unethical and speculative. This arises basically from the fact that in case of certain hedge funds, the strategies employed are speculative. Yet, what investors need to take into consideration is that not all hedge funds are speculative, in fact there is a large number of hedge funds that employ extremely conservative strategies. At the end of it, labeling all hedge funds as speculative would be wrong.

Another myth that might turn away investors is that hedge funds are risky. Once again, this is just a myth, if you know what you are doing, you cannot call it risky. Now the point it, if an investor holds a single stock portfolio, then this could be considered risky. Then again, that is hardly ever the case. So while planning your portfolio, you should ideally insure that the role of volatile assets is limited. This would largely negate the risk factor and would ensure positive returns.

So as an investor, if you were looking at adding hedge funds to your portfolio, but decided not to because of these myths, it is time to think again. In fact, hedge funds can be a good investment tool as long as you undertake proper planning that is well researched and is based on a well founded analysis of the market.

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February 7, 2006 in Research | Permalink