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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  1. 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). 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.

  1. BODY

Generally, hedge fund refers to a private investment method for wealthy individuals or institutional investors. The perspective of “Hedge Fund” definition is very variety. The Columbia Investment Management Association (2007) argues that a hedge fund is a fund which can have both short and long positions, use arbitrage, buy and sell underestimated bonds, securities or trade options, and make investments in any chance in any markets where it predicts telling benefit at decreased risk. Another viewpoint which has been claimed by the Australia Alternative Investment Management Association is that the definition of "Hedge Fund" has come to combine any absolute return fund investing in the financial markets such as stocks, bonds, currencies, commodities, derivatives, etc; and/or using non-traditional portfolio management techniques including, but not limited to, shorting, arbitrage, swaps, leveraging etc (AIMA, 2009). Therefore, the brief definition of hedge fund can be considered that hedge fund is a private investment approach that can take long and short positions in various markets, using various investment  strategies to reduce risk and volatility while attempting to save capital and make positive returns. In terms of main characteristic of the hedge funds, the hedge funds has a vital role on reducing risk, increasing returns and minimizing the correlation with equity and bond markets by using a wide range of financial instruments.

Regarding to the hedge fund strategies, from 1949 when the first hedge fund was established, many hedge fund strategies have been developed in the course of time (Caldwell, 1995). However there does not exist an unique classification scheme although these strategies are quite well defined.

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According to Greenwich Alternative Investments, there are 18 hedge fund strategies which fund managers and investors rely on. They are diversified into 4 main groups namely: Market Neutral Group (including , Event-Driven and Arbitrage);  (including , Opportunistic, Short Selling and Value); D (including );  (including , Fixed Income and Multi-Strategy).

The strategy which is considered firstly is Opportunistic. According to Greenwich Alternative Investments, Opportunistic is defined as a strategy in which the manager’s investment method changes over time and does not consistently select securities according to the same strategy to better take advantage of current market conditions and investment opportunities. ...

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