Research from Northern Trust has found that investors in the United Kingdom are among the most cautious, when it comes to investing in hedge funds. Their research has indicated that the most common reasons for this is under-funding, lack of transparency and high fees.
The biggest part of the alternative asset class is the hedge market, however, 50 per cent of schemes are not investing in them and 35 per cent say that they think it will stay that way.
Our view
The main reason people do not invest in hedge funds is lack of knowledge. We suggest it should remain that way. Many people, including their so called ‘advisers’ have a lack of knowledge of basic investment contracts and taxation let alone ‘hedging’ instruments.
Hedge funds are either taxed very highly to offer virtually secure and guaranteed returns or carry a magnified degree of risk where the portfolio is more aggressive. Hedge funds have risk because they gear up i.e. ‘they place bets’ with more money than they have on a partcicular market rising or falling.
They invest in stocks, shares, commodities such as gold, orange juice etc but they also invest in derivatives of these, such as futures and options e.g. betting on the future price of a stock.
For the average investor, you are advised to steer clear.
Useful links:
Learn more about this and related topics in the Savings Adviser.com Channel
Request expert financial advice now
Purchase guidance on financial planning in the Money Shop