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These are very nervous days for hedge funds. The days of profitable investment seem to be ending with them. The old strategy of these funds is no longer working. These funds may need to reinvent themselves.
from obscurity to fame
The most popular sectors of hedge funds that brought them huge returns are no longer attractive. These include commodity stocks, energy sectors, uranium, gold and real estate. Of all the oil and uranium stocks were only spectacular.
Until 2002, hedge funds were fairly obscure. Many investors did not know about him or did not trust him. These fell in the area of high-yield growth stocks.
Back in 2002-2003 it was much safer to invest because the stock markets were in the grip of a severe bear market and the value of stocks fell almost in half. Energy and commodity stocks were extremely cheap and there was not much downside risk at the time. This is how hedge funds came into prominence.
The fundamental factor that brought him huge profits was the principle of leverage. They believed in highly borrowed money to play the market. Since the shares were cheap and there was not much scope for further losses, the gains were more than the losses. They convert small profits into huge returns and fees.
After the bear market of 2002, hedge funds investing in commodity and energy stocks made huge profits. This gave him tremendous popularity. Now it is a 2 trillion dollar industry.
hedge funds in trouble
Commodity and oil stock prices appear to be maturing. There is little chance that they usually brought large returns. They are at risk of falling and many of them can be dangerous.
The recent credit crunch, mortgage crisis, banking crisis and recession have taken a toll on these funds. The Credit Suisse/Tremont Blue Chip Index, which judges the performance of the best hedge funds, has been mostly flat since the second half of 2007, with most of its 7.4 percent increase coming from the first half of 2007.
However, the Credit Suisse index may not be quite representative because many hedge funds are easily removed from it after their downturns.
The Dark Side of Hedge Funds
A major problem with hedge funds is that unlike other mutual funds, most of them do not publish daily volumes, because of this; In the case of other funds, it is difficult to measure their performance on a regular basis. This makes it extremely difficult to make any informed decision.
The other big problem with them is that they charge very high fees, usually 20 percent of the profit. May be with lower profitability, it may come down.
Third it is also considered questionable that the statistics they report are reliable. It is believed that they are increasing their performance to a great extent.
last word
It is all a question of timing of investment. The past few years have been extremely lucrative and any investment made in the core sectors of commodities and energy has given substantial returns.
Hedge funds are risky. They are like a high yielding investment program. So, it would not be fair to play with him anymore.
Due to the credit squeeze and banks and brokerage firms becoming very cautious in lending, hedge funds may no longer be able to use the strategy of leverage. Stock markets are entering an uncertain future.
No investment seems to be as transparent and high-yielding as a hedge fund. Therefore, more and more investors may prefer to avoid them.
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