Tags: Hedge | funds | value | risk

Experts: Now Might be the Time to Jump into Hedge Funds

By    |   Monday, 27 August 2012 12:25 PM

Hedge funds have taken it on the chin over the last 3.5 years, and that means some of them offer good value now, experts say.

Hedge funds became hot in the last decade, as the funds on average outperformed the Standard & Poor’s 500 Index by 12.4 percentage points a year from 1999 to 2008, according to research firm eVestment|HFN, The Wall Street Journal reports.

But hedge funds have suffered outflows during the past few years, as their returns lagged the S&P 500 by 7.6 percentage points from 2009 until July 31, 2012.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

That’s where the value comes into the picture. And some hedge funds might be able to take advantage of global economic weakness to score investment gains.

There are various ways to choose from among the 10,000 plus hedge funds available. Barclays Researcher David Romhilt categorizes funds as "risk reducers" and "return enhancers," The Journal reports. He recommends that novice hedge fund investors go for the former to avoid losing their shirts.

Also, be careful about leaping into funds with hot short-term returns, The Journal warns. This year’s hero may turn into next year’s zero.

However, for many, if not most, investors, there’s no need to even mess around with hedge funds, which can often lock up your money, keeping it inaccessible to you for long periods of time, even if the fund plunges, advisers say.

Mutual funds and exchange-traded funds replicating hedge fund strategies now abound, so you may want to opt for them as a safer, cheaper alternative.

In addition, hedge fund managers are holding on to historic levels of cash because they are betting on disaster hitting the financial markets within the next several quarters, according to CNNMoney.

Betting on a downturn in this environment is a risky play. Because of their defensive posture, hedge funds have missed out on the 2012 rally.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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Monday, 27 August 2012 12:25 PM
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