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Stock Market Analysis and Personal Finance

Stock Market Analysis and Personal Finance. Mr. Bernstein Hedge Funds May 15, 2013. Stock Market Analysis & Personal Finance Mr. Bernstein. What is a Hedge Fund? Pooled investment funds generally offered only to sophisticated investors

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Stock Market Analysis and Personal Finance

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  1. Stock Market Analysis and Personal Finance Mr. Bernstein Hedge Funds May 15, 2013

  2. Stock Market Analysis & Personal Finance Mr. Bernstein What is a Hedge Fund? Pooled investment funds generally offered only to sophisticated investors Can use wide range of investment vehicles and techniques often not allowed in mutual funds Examples: Derivatives, Short Selling, Short-term trading strategies, High Leverage, Illiquid items Can engage in risky investments (high volatility) but often strive for low overall risk

  3. Stock Market Analysis & Personal Finance Mr. Bernstein What is a Hedge Fund? Benchmark is usually “total return” rather than an index Investors seek high risk-adjusted returns and low “drawdowns” Exact holdings are often not shared with investors to protect proprietary strategies from being copied Typically set up offshore to avoid full SEC regulation

  4. Stock Market Analysis & Personal Finance Mr. Bernstein Hedge Fund fee structures “2% and 20”: 2% fee plus 20% of gains… Example: Return is 10%; manager earns 2% + 1% = 3% …Mutual funds typically 1%; index funds 20bps Only earns incentive above “high water mark” – encourages hedge fund to avoid losses

  5. Stock Market Analysis & Personal Finance Mr. Bernstein Common Hedge Fund Strategies Long/Short or Market Neutral Risk Arbitrage Global Macro Convertible or Volatility Arbitrage Distressed Securities

  6. Stock Market Analysis & Personal Finance Mr. Bernstein Why include Hedge Funds in a portfolio? Reduces risk – low correlation with stocks, commodities Investments usually made in a series of funds or a single “Fund of Funds” to further diversify …can the Hedge Fund investment process be packaged into a Mutual Fund for retail investors?

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