The word hedging tells investors that the purpose of this fund is to avoid risks as much as possible. However, hedging can tell investors another more important thing. This fund can also provide you with above-average returns. Hedge funds will not use the lazy investment method that you and I both know, because the purpose of this investment method is not to accumulate considerable income in the short term; Hedge funds will not use guerrilla warfare to diversify their investment targets, because it is easy for fund managers who seize great opportunities to make less money. In fact, different types of hedge funds will use different smart ways to make money to achieve low-risk and high-return investment goals. Operation example process Hedge funds borrow low-interest yen (interest rate is less than 1%) and convert it into US dollars (strong investment of US dollars in emerging countries' currencies may lead to exchange differences) (interest rate is much higher than that of Japanese yen to earn spreads) and buy the US stock market (if the US stock market is in a state of earning spreads for a long time). Financing pledge US stocks take stock funds and then invest them in other financial operations [Edit this paragraph] Profit mode Hedge funds Hedge funds originated in the 1950 s. Usually, this form of investment behavior includes two technologies, and hedging transactions are carried out according to these two operational skills. The first is short selling, such as selling borrowed stocks first, and agreeing to repay the stocks in the future to earn the profits from falling stocks. The second is financial leverage operation, that is, borrowing money to trade. For example, short the market index to avoid the risk of the overall decline of the market, and then borrow money to buy stocks that they think are undervalued. At this time, if the market index falls, shorting the index will generate profits, and the stock part will theoretically fall less than the market index, because the stock price has been undervalued. When the market index rises, the short index will lose money, but the low-valued stocks they hold are usually much higher than the market index in theory, so they are still profitable. Whether the market index rises or falls, it has little impact on the profit and loss of investment positions, in recognition of its function of avoiding market risks. [Edit this paragraph] The difference between hedge funds and general funds 1. Hedge funds are measured by absolute rate of return, because no matter whether the market goes up or down, it is possible to make a profit. The performance of traditional funds is measured by a certain market index, such as S& etc. Take the performance of P500 index or other similar funds as the evaluation. 2. Hedge funds are rarely restricted. When the market falls, derivative financial products will be used for strategic trading to improve the performance of the fund. The operation of traditional funds in derivative financial products is greatly restricted, and they cannot profit from it when the market trend is weak. 3. Traditional funds charge a certain percentage of the net fund value, while managers of hedge funds charge a certain percentage of the performance fee to earn profits. It will give fund managers a strong incentive to help customers earn income, and the probability of relative risk will increase a lot. 4. Hedge funds can operate different combinations of derivative financial products to determine how high the market exposure risk is. Traditional funds cannot use derivative financial products to avoid the risk of market decline. At most, the investment portfolio of the protection fund only increases the cash ratio or engages in limited index futures operations. [Edit this paragraph] Hedging, arbitrage and speculative trading are separated by a fully functional financial market, which usually allows investors to go long and short in both directions. Take hedging transactions as an example. Zhang San, a hedge fund, can get 10000 shares in the stock market, but the shares will not arrive in advance until three months later. In order to avoid the risk of stock price decline during this period, Zhang San can short the stock now and repay it to the securities finance company when he receives the stock in two months to avoid the risk of stock price decline during this period. Arbitrage trading assumes that Zhang San's friend Li Si also allocated 654.38+00,000 shares of China. Because he is in urgent need of money, he wants to sell it to Zhang San at the price of 45 yuan per share. On that day, the share price of China Stock Exchange was 50 yuan. Zhang San thought it was profitable, so on the day he got the ownership of the shares (because the shares have not been issued yet, he only got the ownership), and at the same time he sold Zhonghua shares 10000 shares in the form of securities lending, and the market price was not equal to the purchase price, making a profit of 50,000 yuan. The biggest difference between arbitrage and hedging is that Zhang San has shares in China at the time of hedging, while Zhang San has no shares in China at the time of arbitrage. Another feature of arbitrage is the concept of "buying and selling" at the same time. If Zhang San decides to "buy" the ownership of China shares from Li Si, he must "sell" China shares at the same time, so as to make sure that he can earn a difference of 50 thousand yuan in the future; If Zhang San is lazy and borrows the securities the next day, then the result of China's stock price fluctuation may fall to 40 yuan one day later, and finally Zhang San will not make a profit or lose money. Therefore, the time of arbitrage is too early to grasp. Zhang San thinks that 40 yuan is on the high side, so he sells 10000 shares of China by shorting. At this time, short selling becomes speculative trading. Therefore, the tool of securities lending can produce different effects according to three different purposes: hedging, arbitrage and speculation. Hedging and arbitrage coexist in operation, and market fluctuation has a great influence on the profit and loss of positions. In particular, general derivative financial products have the same function as securities lending, but their leverage ratio is very large, and even seemingly small profits and losses will expand to unimaginable results. [Edit this paragraph] Points to pay attention to when choosing a hedge fund A survey of institutional investors by Deutsche Bank confirmed what many people in the industry have always suspected, that is, investment decisions will not be greatly affected by the cost difference of hedge funds. Investors choose hedge funds mainly based on three aspects: concept, background and performance. According to the survey, among the participants, 42% expressed concern about the investment concept, 26% about the background and 22% about the performance. In contrast, only 1% of the respondents mentioned commission when evaluating hedge funds. This is the second year that the survey shows the immateriality of commission. The survey was conducted for 376 asset investors around the world, who invested a total of $350 billion in hedge funds. Half of the respondents are fund investors. Among them, 16% is a family investor, 10% is a donation and foundation investment, 7% is a bank and 6% is a pension. Two-thirds of the investment comes from the United States, 1/3 from Europe and 5% from Asia. This survey report shows great differences among investors, but there are also similarities. Most investors (60%) make a decision to invest in hedge funds within 2-6 months, but 37% make a decision less than one month when they need to invest. Family investors and fund investors prefer the latter. For 8 1% investors, the one-year investment cycle is no problem, but 14% investors lock the investment cycle in two years. Of all the respondents, 17% own stocks in the hedge fund portfolio. Among the investors who own stocks, 50% are hedge funds, 265,438+0% are banks and 65,438+07% are family investors. Fund investors only account for 14%. In terms of risk management, 57% of investors check their hedge fund returns monthly, 19% once a week and 14% once a quarter. Half of the investors re-measure their investment income once a month, 28% once a quarter and 12% once a year. Most investors (6 1%) got limited information, while 36% got all the information. The main reason for wanting more information is to monitor risks and formulate strategies. In this respect, hedge funds managed by external managers are different. They need more transparent information than investment funds, families or bank investors. 65% of the respondents said that they would not consider the portfolio products in their hedge funds, while less than 65,438+0/3 of the investors planned to do so. Banks, hedge funds of other funds and insurance companies prefer to use portfolio products. When asked about the provision of services, investors demand more extra services. Most people want the chief broker to help them meet with the fund manager and provide risk and investment reports. In fact, investors mainly look for new fund managers by talking to the chief broker. They also hope that fund managers can provide more fund information and risk levels. [Edit this paragraph] Relative value hedge fund can be said to be one of the most mainstream strategies in the hedge fund industry, accounting for more than 20% of the overall hedge fund market. Its main operation mode is to make profits by buying more and shorting, which leads to the convergence of asset values, while the goal is to reduce the market risk of portfolio and concentrate the risk on other factors (such as industry, scale and cost-benefit ratio). Because value hedge funds operate by buying and selling long and short positions, many people in the industry in the past classified risk arbitrage, merger arbitrage, fixed income arbitrage, convertible bond arbitrage and stock market long and short arbitrage as relative value strategies. The similarity of these strategies is that managers are not guided by market trends, but are looking for investment returns unrelated to the target market, and there are many short and long positions. Therefore, compared with traditional investment or single-trend hedge fund strategy, their risks are greatly reduced, and their past performance has been stable. For conservative investors or investors seeking returns unrelated to the stock market, the relative value operation strategy is a very ideal choice. However, just like other sub-indicators, there will be great differences between different relative value strategies, such as the stability and volatility of linked assets and the actual market return performance. These differences are what investors must make clear before buying hedge funds. [Edit this paragraph] Strategy Relative Value Strategy [1] Relative value strategy focuses on arbitrage by using the price difference relationship between assets, trying to profit from market inefficiency or between two markets, that is, buying and selling investment instruments with similar cash flows and risks at the same time to obtain price difference profits. This strategy generally has low volatility and relevance to the stock market. Examples include fixed income arbitrage, convertible securities arbitrage and so on. Let's take the fusion strategy as an example. Exchange arbitrage uses the price difference between different securities of the same issuing company to earn the price difference. For example, suppose a hedge fund manager buys the ECB of Company A and sells all the shares of Company A at the same time on the day when the ECB of Company A is issued. The fund manager's main strategy is to make use of the differences in price, interest rate and risk between the two markets to invest, and at the same time buy and short the equivalent stocks. Most of the stocks bought belong to companies with low P/E ratio or undervalued stock price, while the short stocks are the opposite. This strategy is most commonly used in the United States. The swap interest rate in the United States, that is, the fixed interest rate in an interest rate swap contract, is usually higher than the national debt interest rate of that year by a certain percentage point, which reflects the credit risk of both parties (banks and governments). However, under certain circumstances, external factors may lead to a temporary imbalance between supply and demand in the market, which will lead to an abnormal expansion or contraction of the spread between the two, thus creating opportunities for investment arbitrage. Event-driven strategy benefits from external events or special environments, such as mergers and acquisitions, corporate restructuring, etc. As a result, the stock price is seriously lower than its own value. Compared with the relative value strategy, event-driven strategy generally has higher volatility and correlation with the market. Examples include merger arbitrage, risk arbitrage, securities investment in financial difficulties and investment in bankrupt enterprises. For example, fund managers will invest in companies such as financial difficulties, major events, mergers and acquisitions, separation and restructuring, and sell them when the crisis or restructuring ends and prices rise. Take the following mergers and acquisitions as an example: Company A announced the acquisition of Company B with 1 share. At present, the share price of Company A is 40 yuan, and that of Company B is 13 yuan. Immediately after the news was made public, the share price of Company B rose to 19 yuan, while the share price of Company A fell to 36 yuan. At this time, the event-oriented hedge fund manager bought 65,438+0,000 shares of Company B, and continued to short 65,438+0,000 shares of Company A, the number of short shares being the same as the share swap ratio. Table 2 predicts the total profit and loss degree through hypothetical situations. We can know that as long as Company A and Company B finally merge, this strategy can lock in the profits of 17 yuan. Fund managers basically invest in long-term and short-term positions, and the most important thing is to use market volatility to improve the rate of return and reduce the impact of market volatility. Opportunity strategy Opportunity strategy has a strong correlation with the trend of the market, mainly based on the changes in the global financial market, such as interest rate trends, exchange rate changes, capital flows in the global market and other factors, by holding different types of investment methods and themes to earn profits, and by seeking profit opportunities through market fluctuations caused by the economic environment (see Figure 3). Examples include macro trading, short selling and investment in emerging markets. Factor analysis includes government policy changes, interest rate changes and monetary policy changes, which broadens our horizons to various financial commodities in the global market, including stock market, bond market and foreign exchange market. At present, most hedge funds take opportunity strategy as the mainstream of operation.