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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.