Fundamental of Hedged Transaction Plan
What is hedge scheme?
Compare the hedged transaction plan and traditional investment, what are their advantages?
Introduction of hedging transaction plan
Hedging transaction plan is an alternative investment vehicles which looking for absolute return.
“Hedging transaction plan” contains any absolute return fund investment within the financial markets (stock, bonds, commodities, currencies, derivatives, and so on) and/ or used non-traditional portfolio management techniques, included, but are not limited to short selling, leverage, hedge, swap, etc.
Hedged plan was originally designed in 1949 in United States, fast growing in the late 1980s, now become the key part of institutional and private client portfolios.They are normally used in a portfolio context rather than being considered as stand-alone investments.
Hedge funds are usually included as a medium to long-term investment in a traditional portfolio of stocks and bonds. As the performance of hedge funds in general are lowly correlated to traditional investments - especially in declining markets when correlations tend to be low - they offer a good source of diversification for most investment portfolios.
By blending a variety of skill-based approaches to investing in a diverse range of financial instruments and markets, hedge fund portfolio construction process aims to achieve a specific return/risk profile, as well as properly diversify and balance the overall portfolio.
Equity hedge funds represent the largest style segment in terms of assets under management of the hedge fund industry. This is due to a variety of differences on the performance of the stock and sector at present, both in developed and emerging markets around the world.
Equity hedge funds aim to profit from long and short positions in equities that are deemed to be respectively under/overvalued, while neutralizing some of the associated market risk.Strategies might be due to a focus on growth or value stocks, particular regions or industry sectors.
Equity Hedge Managers
Equity hedge managers have the ability to produce returns which demonstrate high participation in the upside potential of stock markets and protect capital/minimize drawdowns when equity markets are doing poorly. As such, equity hedge managers aim to provide performance that is comparable to that of traditional equity disciplines but with a more consistent return profile and less downside risk.
Performance is primarily driven by the skill and conviction of a manager. In particular, short selling is a specialist skill which enables managers to capitalize on the negative aspects of events such as earnings announcements, regulatory changes, mergers and corporate events.
Equity Hedge Managers
The depth and size of global equity markets has created a broad range of sub-strategies within equity hedge that often specialize in specific market sectors, for example, emerging markets or technology, a geographical region or in small, medium or large cap stocks.