When it comes to deciding whether you qualify for investments in hedge funds, fund managers have to reasonably believe that you have enough money to make the investment and qualify as a private investor. They are legally bound to ask you about your holdings, swaps and futures, physical commodities and contracts.
However, it is also possible for an individual to invest like a hedge fund. Here are some useful tips for investments in hedge funds that will help you gain attractive returns on your investments.
Look at the cash flow
While most investors keep an eye on Earnings per Share (EPS), other key consideration that skips the investors’ attention is Cash Flow. While EPS can be manipulated by the events like tax benefits, cash flow tracks the flow of money. Cash flow statement tells the investor how the company is performing operationally, whether it has generated large sums from investments or taken money from the third parties. Since the cash flow statement covers investments, operations and finance aspects of a company, it provides a good overview to the investor about the company’s health, and also whether it has enough cash to repurchase shares, or have some value-enhancing transaction.
Use leverage and derivatives
Hedge funds typically use leverage to enhance the return for the investors. This approach is based on the premise that if the investment generates big return to cover commissions and interest rate, the trading can be highly effective too. However, the results could be pretty harmful if the market moves against the leveraged positions. To overcome this, hedge funds take risk by leveraging their positions with derivatives. This increased risk makes the hedge funds exclusive to net high worth individuals or institutions. So, as an investor, you need to be fully considered and capable to absorb the risks.
Multiple brokers for trading
As opposed to the traditional stocks where one deals with a single broker, hedge funds tend to run trades through multiple brokers in order to squeeze out every possible gain from their investments. To achieve better gains, a fund may purchase a security on one exchange and sell it to another. Some may cash on the opportunity of mispricing within the markets. You should be willing to push and wait for the biggest gains as long as the potential positions cancel each other out.
Becoming more informed of the companies
A mutual fund maintains multiple positions and may not have the required in-depth knowledge of a particular company. On the other hand, hedge funds often are willing to know a company pretty well. They try to extract information from the multiple resources including the top management, secondary and tertiary sources, ex-employees and other resources. Since the fund manager’s profits are intimately tied to their performance, they are motivated to get best returns for the investors.
A well-planned exit strategy is important
Retail investors often buy a stock in the hope that its value will rise in the future. However, they do not plan for an exit, like at what price or under what conditions they will consider selling the security. Hedge funds, on the other hand, get involved in a stock to leverage an event, such as acquisition, news of positive earnings, and sale of an asset. Once the event is over, hedge fund managers book their profit and move on to the next opportunity. Mutual fund director may keep an exit door open, but it may represent a fraction of its total holdings, given that the mutual fund may have hundreds of positions. With their fewer positions, hedge funds are usually in an advantageous position to take the exit route in good time to minimize the losses.
Multiply your benefits with the right advice
Investments in hedge funds like HedgeConnect provide multitude of benefits to the investors. One can gain benefit from their ability to access pricing and trade information, industry and broker contacts, and their capability to leverage the investable assets. HedgeConnect offers an excellent lending platform to the investors wherein they can lend their crypto currencies and fiat money which the fund will invest in diversified portfolios to reap the maximum benefits for the investors. If you too are looking for crypto investments in hedge funds, contact their fund manager right away to get the right information and best advice.