Benefits of hedge fund investing

Hedge funds apply a variety of skill-based approaches to investing in a diverse range of financial securities. As a result they have the ability to generate returns that are independent of underlying markets and defend gains when markets are falling.

As a result, these investments can potentially offer:

Diversification

Modern portfolio theorists believe that combining different sources of returns – such as traditional stocks and bonds with alternative investments such as hedge funds - within a portfolio can help reduce risk and stabilise returns.

Downside protection

Many hedge fund strategies seek to offset or even profit from falling prices and so can potentially help to defend portfolios during a market crisis.

Performance

Hedge fund managers can use a wide range of instruments to generate returns and protect gains and so are arguably better positioned to deliver performance than investment managers who rely purely on stocks, bonds or assets gaining value.

As with any investment, hedge funds can lose money as well as make it. Investors should always take professional advice before considering any investment.