I heard that hedge funds are “risk-hedged funds.” Does this mean that hedge funds have no risks?

How do hedge funds make money while avoiding and resolving investment risks?

Many investors must still be confused about how hedge funds operate, so the editor will simplify the complex and use a story to help investors gain a simple understanding of hedge funds.

How do hedge funds make money?

As soon as Xiao Ming finished his final exam, he immediately went to tell his dad that I would definitely pass, so buy me a gift first!

Dad was so happy that he bought a gift for Xiao Ming.

However, after receiving the gift, Xiao Ming began to worry, what if he failed?

He will definitely be beaten.

Xiaoming had an idea and ran to his grandma and cried, saying that if I failed the exam, my dad would beat me!

Grandma poked the floor with her cane with a "dong" sound: He dares!

Xiao Ming wiped his tears and thought: Well, I can finally play ball with peace of mind? Note, in this case, it doesn't matter whether Xiao Ming fails the exam or not. The key is whether he can get the toy.

When he grew up, Xiao Ming became a fund manager, but in his opinion, what he did was the same as when he was a child.

First, build a stock portfolio that you believe can bring excess expected annualized expected returns (Alpha). This is equivalent to holding the basketball in your arms when you don't know whether you will fail (whether the market will rise or fall in the future).

Then establish a short position in stock index futures in order to hedge against systemic risk (Beta). In this way, as long as Xiao Ming's portfolio is indeed stronger than the market and can create a certain excess of expected annualized expected returns, then no matter how the general trend falls, he can stabilize

A steady profit.

Strictly speaking, in the definition of hedge funds, this operating strategy is called alpha (alpha) strategy, which refers to the excess expected annualized expected return brought about by the stock portfolio exceeding the stock index.

This is also known as, hedge funds can earn alpha regardless of market ups and downs.