The best hedge funds are those that are able to grow by quite a bit each year. The benchmark Eurekahedge Hedge Fund Index, for instance, is currently sporting a five-year trailing annual return of about 13%. That includes an impressive 1.9% gain in August alone.
It’s little wonder, too, that hedge fund investors saw such an increase in inflows last month. Inadequate investment yields, coupled with a lack of transparency in the bond and equity markets, has resulted in lower returns and a dwindling pool of potential clients. The best of the best will be able to grow their portfolios by leaps and bounds thanks to better technology, access to a huge array of global investments, and a few simple tricks. Here are some of the best tips for creating a portfolio that will perform well next year.
As with any type of investing, it’s important to remember that good investing doesn’t pay as much as it did a generation or two ago. The sheer number of years since the global financial crisis means that hedge funds will have a much harder time finding high-quality stocks to invest in. This makes finding a good quality fund much more difficult than it used to be. It will certainly help if you can find a handful of ideal high quality investments to begin with.
Another tip that many investors have given is that the best hedge funds are not always the cheapest. Some may argue that this is simply due to investors being lazy and unwilling to spend the required time and energy to seek out good deals. While it is true that some investors are simply unwilling to commit the time and energy necessary to find good deals, they should consider what their alternative options are. Investing in cheaper stocks may not allow you to earn as much money as you could, and will also probably leave you holding a stock that is not offering you any real growth opportunity.
Most importantly, hedge funds should only invest in companies that they understand. You need to understand how a business operates if you want to manage your fund properly, especially if you are going to invest in a large part of the portfolio. For instance, if you invest in a private equity fund that invests in real estate, it is imperative that you understand the housing market before you invest your money in it. Otherwise you might just end up gambling your way into a loss.
There are also many things to look out for when choosing private equity funds. While this type of investment has proven to be very reliable and beneficial, there are plenty of firms out there that pretend to offer great hedge funds, but really aren’t worth the paper they’re written on. A smart investor should thoroughly research any potential fund and should only invest in those that have a solid track record.
While solid hedge funds track record is extremely important, it is not all that matters. After all, you are looking to invest your hard earned money, so it pays to know what you are getting before you invest. What you need to look out for are the different types of investments that hedge funds offer. There are obviously different types of investments that are going to be more reliable than others, so you’ll need to ensure that you are investing in a fund that covers the type of investment you want to make. For instance, you wouldn’t want to put all of your eggs in one basket and end up with a poorly performing fund.
Choosing the right hedge funds is very important. If an investor wants to make sure that their hedge fund returns are as high as possible or at least comparable to the returns from blue-chip stocks, it makes sense to do some research into what blue-chip stocks are being Invested In. A good fund should make investments in companies that are stable enough to withstand the ups and downs of the stock market. If an investor researches hedge funds that closely resemble the kinds of stocks they are interested in purchasing, and they find that the returns are better than their investment, then they can move on to choosing the appropriate fund.