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Hedge funds strategy. This assignment will analyse two hedge fund strategies namely Opportunistic and Macro to make comparison with a benchmark buy-and-hold approach by making a comparison of the historic returns

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Introduction

I. INTRODUCTION Although bestowing upon the investors profit, the growth of the stock market also brings a lot of risk. Therefore, the investors have to look for the methods to keep the risk at a minimum if they want to get the maximum benefit. From the 19th century, hedge funds have become more and more vital investment instruments on the financial markets. In recent years, as a lot of investors want to take part in the superior gains, the capital invested in such funds has grown fast. According to the estimation of TheCityUK, from 2000 to 2010 the global number of hedge funds grew from below 2000 to just under 9000, whereas at the same time the invested capital went up from 1000 bn assets to nearly 2200 bn asset (TheCityUK, 2010)1. Therefore, the hedge fund was established as one of the best way to help the investors protect their investment portfolio from the instability of markets. This assignment will analyse two hedge fund strategies namely Opportunistic and Macro to make comparison with a benchmark buy-and-hold approach by making a comparison of the historic returns and an overview of the nature of the risk of two strategies of the Greenwich Strategy Group Indices (which are the Opportunistic and Macro), the FTSE 100 Index and the S&P 500 TR Index. II. BODY Generally, hedge fund refers to a private investment method for wealthy individuals or institutional investors. ...read more.

Middle

In order to choose the best way for the investors, it is necessary to analyse the risk of the Opportunistic, the S&P 500 TR Index and the FTSE 100 Index. The below chart 3 expresses the standard deviation of 3 and 5 year annualised of the Opportunistic, the FTSE 100 Index and the S&P 500 TR Index. Standard deviation is the rate which is used to examine the volatility of the historical returns hence it helps the investors identify what stocks, trade options or bonds have a small fluctuation. It is very important because the investment has strong movement (for example, bonds or stocks have high standard deviation) which has more risk than the steady investment (bonds or stocks have low standard deviation). According to chart 3, the standard deviation of the Opportunistic is the lowest. More specifically, the 3 year annualised standard deviation of the Opportunistic is 8.1% much smaller than the S&P 500 TR Index with 15.6% and the FTSE 100 Index with 14.7%. Moreover, the 5 year annualised standard deviation of the Opportunistic is 8.8% while the rate of the S&P 500 TR Index is the highest with 19%. Over the same period, the standard deviation of the FTSE 100 Index is 17% bigger compared to the rate of the Opportunistic. As a result, the investors can get the lowest risk if they invest by the Opportunistic strategy. ...read more.

Conclusion

Klein. Eds. , Hedge Funds. Irwin Professional Publishing, New York, pp. 1-17. 3. Columbia Investment Management Association, 2007, What is a hedge fund, Columbia University, 3022 Broadway, New York. 4. Greenwich Alternative Investments, 2012, Hedge Fund Strategy Definition, http://www.greenwichai.com, viewed date May 12th 2012. 5. Greenwich Alternative Investments, 2012, Hedge fund strategy performance, http://www.greenwichai.com, viewed date May 12th 2012. 6. Greenwich Alternative Investments, 2012, Hedge Fund Indices, http://www.greenwichai.com, viewed date May 12th 2012. 7. TheCityUK, 2010, 'Hedge Funds', Financial Markets Series, UK. 8. Itzhak Ben-David, Francesco Franzoni, Rabih Moussawi, 2010, 'The Behavior of Hedge Funds during Liquidity Crises', Charles A. Dice Center for Research in Financial Economics, Fisher Business of Business. 1 TheCityUK, 2010, 'Hedge Funds', Financial Markets Series, UK 2 Alternative Investment Management Association, 2010, Hedge Fund Booklet, Australia http://www.aima-australia.org/forms/AIMA_HF_BOOKLETJan09.pdf 3 Caldwell, T., 1995, Introduction: The model for superior performance, in: J. Lederman, R.A. Klein. Eds. , Hedge Funds. Irwin Professional Publishing, New York, pp. 1-17 4 Greenwich Alternative Investments, 2012, Hedge Fund Strategy Definition 5 Greenwich Alternative Investments, 2012, Hedge fund strategy performance, http://www.greenwichai.com, viewed date May 12th 2012 6 Greenwich Alternative Investments, 2012, Hedge Fund Indices, http://www.greenwichai.com, viewed date May 12th 2012 7 Greenwich Alternative Investments, 2012, Hedge Fund Indices, http://www.greenwichai.com, viewed date May 12th 2012 8 Greenwich Alternative Investments, 2012, Hedge Fund Indices, http://www.greenwichai.com, viewed date May 12th 2012 9 Greenwich Alternative Investments, 2012, Hedge Fund Indices, http://www.greenwichai.com, viewed date May 12th 2012 ?? ?? ?? ?? 0 ...read more.

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