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February 16, 2006
Hedge Funds: Misconception Galore
One of the most popular misconceptions about hedge funds is that all of these funds are volatile. The misconception connects that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities, and gold, while using a too much of leverage. However, a close study in to the fledging sector brings to front the general level, wherein fewer than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all, and many use no leverage.
People also are wary of, as much as they are attracted, to the aggressive growth strategies of the hedge funds. Investments in equities are expected to experience acceleration in growth of earnings per share. In general high P/E ratios, low or no dividends; often smaller and micro-cap stocks, are expected to experience rapid growth.
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