5 types of hedge funds

By Staff | July 27, 2015 | Last updated on July 27, 2015
1 min read

Hedge funds can be categorized into five main investment styles:

1. Trend following: Also known as managed futures, these profit from exploiting pricing trends in a wide range of instruments such as currencies, interest rates, equities, metals, energy and agricultural commodities. Managers get exposure to these investments through global futures markets, with over 200 standardized futures contracts that can be traded both long and short.

Discretionary managers rely on judgment and expertise to make investment decisions.

Systematic managers use mathematical models and high-frequency data analysis to identify and capture price trends.

2. Global macro: Managers capitalize on upward or downward trends across markets, asset classes and financial instruments by analyzing macroeconomic indicators and developing an investment thesis.

3. Equity hedged: Managers take offsetting long and short positions. The long positions are on undervalued stocks, the short positions are on overvalued stocks. This is the strategy that started the hedge fund industry.

4. Event driven: Investment decisions are triggered by specific events, including corporate actions such as bankruptcies, asset sales, mergers or takeovers.

5. Arbitrage: This refers to opportunities resulting from the mispricing of related assets. Managers are able to exploit the expected convergence of these prices by taking a short position in the overvalued asset and a long position in the undervalued asset, producing profits regardless of the overall market direction.

Advisor.ca staff


The staff of Advisor.ca have been covering news for financial advisors since 1998.