Isn't it odd that the US government won't let you invest in a hedge fund unless you are worth a million or more, but they will sell you a lottery ticket as long as you have the price of the ticket?
Something is wrong with that picture isn't there? Those ones who buy a lottery ticket every day would be MUCH better off if they could invest that money. Even if they picked Bernnie Madoff as their Hedge Fund manager, they have a better chance of coming out than with the lottery ticket (most of Bernnie's clients will get at least some of their money back, but most lottery players will not see a dime).
On the other hand, many hedge funds have hit home runs over the years for their investors. A few hedge fund managers are some of the sharpest investors around. But again, most of us don't qualify to let them invest our money!
Even if you did financially qualify for hedge fund participation, there are a few negatives you would want to be aware of. First, most hedge funds charge fairly high fees. 2% is a normal annual management fee. Then the fund manager will take 20% or more of all the gains!
Secondly, hedge funds are not always liquid. In other words, you can't just call them up or click your mouse and have them send you money. Usually it takes some time to cash out. Investors are willing to put up with this negatives because of the unusually high rates of return possible with many hedge funds.
With that in mind, you can now create your own hedge, or at least secure hedge-fund like returns with ETFs, and MLPs.
In this article we will focus mainly on ETFs that you might use to create your hedge (keep in mind these are only examples, you would want to research any investment to see how it is performing and projected to perform).
Most hedge funds like to diversify, and here are some areas of great interest to many fund managers.
For the past several years, emerging countries have offered much better rates of return than US stocks. Here are a couple ETFs that take advantage of that trend:
Fund Name & = Ticker Symbol
Vanguard Emerging Markets ETF = VWO iShares MSCI EAFE ETF = EFA
Most people don't really know the difference between stocks and bonds. Wall Street primarily sells stocks or equities, so the majority of brokers push the same. Basically stocks are shares of ownership in a company, and bonds are shares of the debt. With a bond you are actually lending money to the government of corporation the issues the bond.
Bonds can offer solid yields in nearly any market situation, so most fund managers include them in the mix. To understand all the ins-and-outs of bonds would require a huge learning curve. Yet, you can let the professionals do all that for you with the following ETFs in your personal hedge fund:
iShares Barclays 20+ Year Treas Bond = TLT SPDR Barclays Capital Intl Treasury Bond = BWX
The above bond ETFs focus mainly on government bonds. Hedge funds often also invest in Corporate bonds (and even some higher risk Corp. bonds sometimes referred to as junk bonds). Here are some ETFs that focus on corporate bonds:
SPDR Barclays Capital High Yield Bond = JNK iShares iBoxx $ High Yield Corporate Bd = HYG PowerShares High Yield Corporate Bond = PHB
Most hedges would include some type of energy play, and that would almost always include oil. Here are two ways to play oil with ETFs:
To cash in when the price of oil is rising use:
iPath S&P GSCI Crude Oil Ttl Ret Idx ETN = OIL
To capitalize on the falling price of oil use:
UltraShort Oil & Gas ProShares = DUG
You might also consider the following ETF that invests in futures contracts in an attempt to track the spot price of light, sweet crude oil:
United States Oil Fund LP = USO
If you would like your hedge to include some Gold use:
SPDR Gold Shares = GLD
No hedge fund would be complete without taking advantage of foreign currency. A currency hedge play can offset losses for you if stocks and bonds were to blow up as they did in 2008. You can also profit by not having all of your funds dependant upon the US dollar.
Yet, to learn and stay on top of FOREX you would need a few full-time employees! Or, you could just consider the following ETFs:
WisdomTree Dreyfus Chinese Yuan = CYB CurrencyShares Japanese Yen Trust = FXY WisdomTree Dreyfus Japanese Yen = JYF CurrencyShares Euro Trust = FXE CurrencyShares British Pound Sterling Tr = FXB
With a little research and the power of ETFs, you should be able to set up your own hedge fund that could compete with the returns from the big boys, and without all the fees!
Article Source: http://www.bharatbhasha.net
Article Url: http://www.bharatbhasha.net/finance-and-business.php/377969
Article Added on Wednesday, July 18, 2012
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