We already know that hedge funds are unconventional investment funds in the sense that have a use of strategies other than traditional mutual funds . Here is a summary of the major hedge fund strategies:
1 ) Directional trading strategies , as the name implies, take advantage of the directional tendencies of the various markets (currencies, commodities , equity markets , bond markets , money markets and futures ) for profit. To do this they use a statistical approach / quantity (based on computerized data) and / or a fundamental approach / discretionary. Within this macro category they are distinguished from other sub- strategies depending on parameters such as investment style , risk tolerance, the use of leverage or less, the number and type of selected markets to operate. For example :
* The global macro strategy using a discretionary approach that attempts to predict macroeconomic trends and events in the world economy and invest in the best. It moves on a broad range of markets and also makes use of derivative instruments.
* The systematic trading strategy instead uses statistical methods to identify the trends in the prices of currencies, commodities, shares, bonds and futures.
2 ) Strategies Long / short equity is focused on the equity markets . The operator must know how to choose stocks while buying them if they are valid (long positions) or sell them if they give bad performance ( short positions ). Within this strategy, there are subcategories in the way of “exposure” as:
* Long bias or exposure to the market in which, however, tend to be long or long exposure exceeds always the short one ;
* Market neutral, ie exposure to market almost anything;
* Variable bias, ie, variable exposure to the market depending on what is most convenient.
3) The relative value strategies are aimed at generating profit from misalignment of prices between stocks that are closely related , making use of various arbitrage strategies such as merger arbitrage , convertible arbitrage , fixed- income arbitrage and multi- arbitrage (we’ll talk about it ) .
4) The specialist credit strategies focus on investment in credit-linked securities and includes some subcategories , such as the distressed securities strategy , the loan origination strategy , the long / short credit and the multi- crew (although the latter will return to talk ) .
Finally, there are multi-strategy funds, which are increased dynamically from one strategy to another.