Roughly two-thirds of Americans don't know what a hedge fund is, according to a recent survey by Thesis Fund Management, a New York based registered investment advisor and manager of The Flexible Fund (TFLEX).
The RIA reports 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."
Wealthy investors have historically gravitated toward hedge funds for their potential to outperform in all 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, criticized 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. Thesis Fund Management's Thesis Flexible Fund, for example, 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 utilizes more diverse tools to manage risk and capitalize on market opportunities," said 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."
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