A recent survey conducted by Thesis Fund Management, a New York based registered investment advisor and manager of The Flexible Fund (TFLEX), has revealed that many Americans are in the dark when it comes to hedge funds. When asked if they know what a hedge fund is, 65 percent of the 1,000 survey participants with varying income levels responded that they do not.
Though hedge funds are typically reserved for wealthier consumers, mutual funds have begun adopting their strategies to make them available to the average investor, making it increasingly important to educate consumers about hedge fund strategies.
"Hedge funds are often in the news, but when it comes right down to it, very few people know what they are," says Stephen Roseman, chief executive officer of Thesis Fund Management. "Now that hedge fund style mutual funds are available to all investors, it’s time for people to gain a better understanding how this type of product may benefit their portfolio."
For years, wealthy investors have invested in hedge funds because they utilise strategies that have the potential to outperform in all types of market cycles. By buying certain stocks they hope will rise in value and selling others they anticipate will decline, these fund managers "hedge" their exposure to the broader markets. Hedge funds have evolved over time to include diverse techniques and asset classes including bonds, derivatives and commodities.
However, typical hedge funds have a major drawback: as limited partnerships they are available only to the wealthy, accredited investors. Hedge funds have also been under the microscope, criticised for high fees, long lock-up periods and a lack of transparency. With so much focus on negative aspects of hedge funds, benefits have been overlooked and myths have been perpetuated.
Hedge fund style mutual funds attempt to bring together the positive aspects of hedge funds without the negatives. For instance, The Thesis Flexible Fund, which just celebrated its one year anniversary, combines the diverse multi-strategy investment approach typically found in hedge funds with the daily pricing, daily liquidity and overall transparency of a mutual fund.
"Simply put, hedge fund style investing utilises more diverse tools to manage risk and capitalise on market opportunities," says Roseman. "Whether that means buying long, selling short or simply moving to cash when the markets warrant they can be a very effective way to manage risk and further diversify your portfolio."