SAXO BANK
Hedge Fund Consistency Index, Hedge Funds Research
Hedge Fund Consistency Index  
Midwest Office:
641-472-7373 Ext.112
News Books Scholarly Definitions


FREE ACCESS!
Subscribe for
Free Access
to over 4000+ pages of Profiles and Top 20 Rankings. No obligation ever.


User Name:

Password:




 
Market Neutral Investing
see also: equity market neutral
                 

CONTRIBUTE articles, books, comments, links, news,
and/or scholarly or white papers - by clicking 

 

  1. Definition
  2. Examples, Types, or Variations
  3. Formula
  4. Related Terms
  5. As Used in the Hedge Fund World
  6. Applications
  7. Misused & Abused
  8. Additional Sources of Information
    1. Books
    2. News
    3. Scholarly Papers
       
 

1.
 

Definition
 
 

An hedge fund investing strategy wherein the manager will take established positions in the market to take advantage of mispricings of correlated or semi-correlated assets. Using this strategy for equity funds, the manager will have a portfolio equally divided between long and short positions.

Other Resources:

  • Teen Analyst: Market neutral funds attempt to remove the market risk from their portfolios by being both long and short in a given sector.  MoreÖ
     

Contribute to this section by clicking                    top

 

2.
 

Examples, Types, or Variations
 
 

Market Neutral Strategies Consist of:

  • Equity Market Neutral
     

  • Event Driven

    • Distressed Securities

    • Merger Arbitrage
       

  • Market Neutral Arbitrage

    • Convertible Arbitrage

    • Fixed Income Arbitrage

    • Statistical Arbitrage
       

Contribute to this section by clicking                    top

 

3.
 

Formula
 
 

Contribute to this section by clicking
                  
top

 

4.
 

Related Terms
 
 

Contribute to this section by clicking                    top

 

5.
 

As Used in the Hedge Fund World
 
 

Market neutral strategies can be seen as the limiting case of equity long short, in which the long and short portfolios of the fund are balanced with great care so that a very high degree of hedging is achieved.

Strictly, "Market neutrality" just refers to hedging out market risk, which can be managed through the use of derivatives such as futures on market indexes. However, market neutral funds usually seek to hedge against most or all predictable risk exposures. As a result they are among the least volatile hedge funds.

Other Resources:

  • International Management Services, Ltd.: Unlike private equity funds which are subject to the ups and downs of the market, a hedge fund is designed to be market neutral with a low level of correlation with the major world equity markets. MoreÖ
     
  • SmartMoney.com: QUESTION: Can you give me some information on "market-neutral" funds? How many funds make up the market-neutral universe? MoreÖ
     

Contribute to this section by clicking                    top

 

6.
 

Applications
 
  An investment strategy or portfolio is considered market neutral if it seeks to entirely avoid some form of market risk, typically by hedging. In order to evaluate market neutrality, it is first necessary to specify the risk being avoided. For example, convertible arbitrage attempts to fully hedge fluctuations in the price of the underlying common stock.

A portfolio is truly market neutral if it exhibits zero correlation with the unwanted source of risk. Market neutrality is an ideal which is seldom possible in practice. A portfolio which appears to be market neutral may exhibit unexpected correlations as market conditions change. The risk of this occurring is called basis risk.

 

Contribute to this section by clicking                    top

 

7.
 

Misused & Abused
 
 

Most market neutral strategies tend to be controversial due to their highly leveraged and very speculative nature.


Contribute to this section by clicking
                  
top

 

8.
 

Additional Sources of Information
 
 
  1. Books
  2. News
  3. Scholarly Papers

 

Back to Terms

News Books Scholarly Definitions

HEDGE FUND RISK AND OTHER DISCLOSURES
Hedge funds, including fund of funds (ďHedge FundsĒ), are unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments (including securities, non-securities and derivatives) and are NOT subject to the same regulatory requirements as mutual funds, including mutual fund requirements to provide certain periodic and standardized pricing and valuation information to investors. There are substantial risks in investing in Hedge Funds. Persons interested in investing in Hedge Funds should carefully note the following:
  • Hedge Funds represent speculative investments and involve a high degree of risk. An investor could lose all or a substantial portion of his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in a Hedge Fund.
  • An investment in a Hedge Fund should be discretionary capital set aside strictly for speculative purposes.
  • An investment in a Hedge Fund is not suitable or desirable for all investors. Only qualified eligible investors may invest in Hedge Funds.
  • Hedge Fund offering documents are not reviewed or approved by federal or state regulators
  • Hedge Funds may be leveraged (including highly leveraged) and a Hedge Fundís performance may be volatile
  • An investment in a Hedge Fund may be illiquid and there may be significant restrictions on transferring interests in a Hedge Fund. There is no secondary market for an investorís investment in a Hedge Fund and none is expected to develop.
  • A Hedge Fund may have little or no operating history or performance and may use hypothetical or pro forma performance which may not reflect actual trading done by the manager or advisor and should be reviewed carefully. Investors should not place undue reliance on hypothetical or pro forma performance.
  • A Hedge Fundís manager or advisor has total trading authority over the Hedge Fund.
  • A Hedge Fund may use a single advisor or employ a single strategy, which could mean a lack of diversification and higher risk.
  • A Hedge Fund (for example, a fund of funds) and its managers or advisors may rely on the trading expertise and experience of third-party managers or advisors, the identity of which may not be disclosed to investors
  • A Hedge Fund may involve a complex tax structure, which should be reviewed carefully.
  • A Hedge Fund may involve structures or strategies that may cause delays in important tax information being sent to investors.
  • A Hedge Fund may provide no transparency regarding its underlying investments (including sub-funds in a fund of funds structure) to investors. If this is the case, there will be no way for an investor to monitor the specific investments made by the Hedge Fund or, in a fund of funds structure, to know whether the sub-fund investments are consistent with the Hedge Fundís investment strategy or risk levels.
  • A Hedge Fund may execute a substantial portion of trades on foreign exchanges or over-the-counter markets, which could mean higher risk.
  • A Hedge Fundís fees and expenses-which may be substantial regardless of any positive return- will offset the Hedge Fundís trading profits. In a fund of funds or similar structure, fees are generally charged at the fund as well as the sub-fund levels; therefore fees charged investors will be higher that those charged if the investor invested directly in the sub-fund(s).
  • Hedge Funds are not required to provide periodic pricing or valuation information to investors.
  • Hedge Funds and their managers/advisors may be subject to various conflicts of interest.
The above general summary is not a complete list of the risks and other important disclosures involved in investing in Hedge Funds and, with respect to any particular Hedge Fund, is subject to the more complete and specific disclosures contained in such Hedge Fundís respective offering documents. Before making any investment, an investor should thoroughly review a Hedge Fundís offering documents with the investorís financial, legal and tax advisor to determine whether an investment in the Hedge Fund is suitable for the investor in light of the investorís investment objectives, financial circumstances and tax situation.

All performance information is believed to be net of applicable fees unless otherwise specifically noted. No representation is made that any fund will or is likely to achieve its objectives or that any investor will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. Past performance is not necessarily indicative, and is no guarantee, of future results.

The information on the Site is intended for informational, educational and research purposes only. Nothing on this Site is intended to be, nor should it be construed or used as, financial, legal, tax or investment advice, be an opinion of the appropriateness or suitability of an investment, or intended to be an offer, or the solicitation of any offer, to buy or sell any security or an endorsement or inducement to invest with any fund or fund manager. No such offer or solicitation may be made prior to the delivery of appropriate offering documents to qualified investors. Before making any investment, you should thoroughly review the particular fundís confidential offering documents with your financial, legal and tax advisor and conduct such due diligence as you (and they) deem appropriate. We do not provide investment advice and no information or material on the Site is to be relied upon for the purpose of making investment or other decisions. Accordingly, we assume no responsibility or liability for a ny investment decisions or advice, treatment, or services rendered by any investor or any person or entity mentioned, featured on or linked to the Site.

The information on this Site is as of the date(s) indicated, is not a complete description of any fund, and is subject to the more complete disclosures and terms and conditions contained in a particular fund's offering documents, which may be obtained directly from the fund. Certain of the information, including investment returns, valuations, fund targets and strategies, has been supplied by the funds or their agents, and other third parties, and although believed to be reliable, has not been independently verified and its completeness and accuracy cannot be guaranteed. No warranty, express or implied, representation or guarantee is made as to the accuracy, validity, timeliness, completeness or suitability of this information.

Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indexes have limitations because indexes have volatility and other material characteristics that may differ from a particular hedge fund. For example, a hedge fund may typically hold substantially fewer securities than are contained in an index. Indices also may contain securities or types of securities that are not comparable to those traded by a hedge fund. Therefore, a hedge fundís performance may differ substantially from the performance of an index. Because of these differences, indexes should not be relied upon as an accurate measure of comparison.




 |  Privacy Notice  |  Industry Links  |  Terms Of Use  | 

Hedge Fund Data Licensed to Mt. Rushmore Securities LLC by Barclay Trading Group, Ltd.
© Mt. Rushmore Securities LLC, Member NASD, SIPC