Cross-hedge
Securing the position of one instrument on the spot market, the launch position on the futures market to another, but related
instrument. The principle of cross-hedgu is the assumption that prices of these two instruments are related to each other related.
Hedging
This opening position in the futures market, the reverse position of holding on to the cash market to minimize the risk of losses due
to adverse price changes. This also buy or sell a futures contract for the replacement of temporary cash transaction, which is to take
place in the future.
Currency options can be used to trade in foreign currency and hedging.
Positive outlook
From quarter to quarter, hedge funds beat the world records its own influence. From March to June of this year attracted 43.3 billion
dollars and it was the fifth consecutive quarter of growth. Since the beginning of the year they were able to persuade investors to
entrust them with 72.2 billion dollars. Demand for hedge funds is growing. It is estimated that in the years 2004 – 2008 the number of
hedge funds the world over will increase from 8 000 to almost 12 000 Thus, changes in the value of assets managed by them – it will
grow from 800 billion to $ 1.8 trillion dollars.
The growing confidence of institutional clients
It is expected, however, that the proportions of asset classes in the portfolios of investors will change as the achievement of the
sector phase of maturity. May testify about it even the fact that more and more institutional investors decide to invest in hedge
funds. In some funds (eg: Man Investments) to the total capital invested by institutional clients has already exceeded the value of
the assets entrusted to us by individual clients. In 2003, 56.5% of the fund support the institution, and only 43.5% of individuals.
More and more substantial investment (within the legal constraints of existing institutions of the structure of the investment of public
trust) make pension funds. It is very important because they are both the most conservative and largest institutional investors. In
the U.S., several leading universities have decided to make hedge funds one of the fixed position of its investment portfolio. Among
the most spectacular examples of diversification of the portfolio of The Wall Street Journal listed The University of Chicago, which
within 2 years has increased its investments in hedge funds from 1 to 15%. Such an increase in institutional investors causes
further changes in the sector. These customers are demanding more transparency in the sector and a shorter period of redemption
(redemption of shares in the fund).Hedge funds implement more stringent standards for reporting, expand facilities and introduce a
service level suited to the corporate nature of their clients.
How to make optimum use of investment tools?
Advantages attributed to hedge funds for diversification suggest a portfolio of traditional instruments so far. It is estimated that the
optimum would be investing in hedge funds half of the assets. Then, because it is possible to achieve the highest rate of return at
the lowest risk. Increasing the participation of hedge funds in the portfolio over this threshold will indeed further increase profits, but
also leads to increased risk. Most investors do not yet manifest tendency to such a large exposure to risk and occasionally decides
to take such a step.
Art of fund management
Many hedge funds have in place internal limits on capacity, or maximum amount taken to manage the assets. Such restrictions
allow you to concentrate on finding the most attractive opportunities emerging market investments. Thanks to their managers have
a higher flexibility and can more quickly exploit favorable circumstances. Factor in the success of hedge funds is also the fact that
their managers often invest their own assets into funds managed by them. In addition, the fund manager’s remuneration is directly
dependent on the results worked out by him.
Reduced risk of
There are several reasons why hedge funds are more desired by the investor’s risk profile relative to earnings than traditional
investments. One of them involves the selective use of short sales and investment in derivatives. This not only protect against
excessive risk (which is the essence of hedging), but also make a profit even in the bear market. Hedge funds often use the strategy
of the arbitration. In this way they avoid the correlation with the market shares. An additional advantage over traditional investments
is the possibility of multiple hedging strategies. Their goal is to protect against excessive risk. Hedge funds often use them based
on the belief that through the effect of diversifying the portfolio of risky investments is always less risk than one that is limited to only
one risky strategy. One has to note that the strategies are sometimes used by managers of hedge funds for speculative purposes,
which involves a huge risk. With the diversification of the portfolio there is a greater likelihood that in the event of loss referenced by
the application of one strategy, it will be offset (perhaps even with interest) by the fact of using a different strategy.
Hedge funds and stock market
Enrich hedge portfolio consisting of investments by all the traditional benefits of portfolio diversification – enable realization of
expected gains at reduced risk. This happens both during declines and increases in equity and bond markets – trends in the hedge
funds are not always in keeping with trends in the market of traditional investments. Most, however, said the low correlation with the
market for alternative investments of traditional instruments. This may explain why in July, when the indices S & P 500 and MSCI
World Equity Index fell by 3.3% and the Dow Jones Europe Stoxx 50 lost 2.7%, hedge funds managed to avoid such large losses,
and about 87% of funds hedge are included in the index Van Global Hedge Fund Index gained better results than the S & P 500
Better yet, this relationship can be seen if one compares the results for the first seven months of 2004. During this time, the index
value, Van Global Hedge Fund Index rose by 1.3%, the S & P 500 was flat at a level and indexes of the Dow Jones Europe Stoxx
50, MSCI World Equity Index fell by 4.8% and 0.9%.
Changes are coming
Slump in world stock markets inspired investors to search for sources of income other than shares. Declines quotations remind them
how great the risk may be associated with established investment portfolio. In this situation, investors are increasingly recognizing
the importance of experience and investment advisory services provided by specialized independent entities. Attract and retain
investors’ funds will be able to only those who in varying market conditions will ensure the maintenance of capital, in the long term
will lead to an increase in its value. Such a possibility offers investments in hedge funds. One source of competitive advantage
over other investment advisers may therefore prove that their investment product range will be complemented by the possibility of
investing surplus funds in alternative investments. Those who do not take into account in the hedge fund products offered by them
can expect a total outflow of customers, or at least that part of their assets, which are willing to commit to investing in hedge funds.
Hedge Funds
A new form of investment, or how to earn big money today
Hedge funds are, in comparison with traditional forms of investment, relatively rarely used tool to multiply the money. Everything
indicates, however, that soon it will be widely available in Poland. Therefore, today we know what is investing in hedge funds.
Over the global economy still looms the specter of slowdown and recession. Do not stop worrying about the high level of oil prices
and the threat of potential terrorist attacks. All this makes the indexes like the S & P 500 (representing the 500 largest companies
listed on the New York Stock Exchange), the Dow Jones Europe Stoxx 50 (based on the courses of the 50 biggest companies
blue chip Eurozone) or MSCI World Equity Index (representing the global share price and based on the 23 most developed capital
markets) are losing value.