The Case for Adding Hedge Funds to a Traditional Investment Portfolio

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The Case for Adding Hedge Funds to a Traditional Investment Portfolio
Hedge funds form a crucial subsection of alternative investment opportunities. Its application across different types of investments through different approaches trades off mesmerizes its investors with high returns and a selection of alternative investment portfolio that guarantees them future returns. Over the last few decades, pension funds have begun putting their assets on alternative investments such as hedge funds to maximize their wealth of investment expertise and potential to offer high returns. Incorporating hedge funds into traditional investment portfolios should be encouraged as it offers profound financial benefits of high returns investment, diversification of investments, new opportunities, and access to expert advice and transparency.
Diversification is the chief upside of adding hedge funds to a traditional investment portfolio. A hedge fund manager utilizes long or short, event-driven, tactical trading, and emerging markets investments strategies to make their clients' money by exposing them to diverse investment styles. By adding hedge funds to a traditional portfolio such as bonds, stocks, and pension funds, investors' risk, normally experienced with conventional equity and bond markets, is significantly reduced while the returns significantly rise (Kräussl et al. 8-10). According to Kräussl et al. (8-10), hedge funds have developed strong track records of protecting investors' investments during high volatility markets and reduced stock prices over the last twenty years. By investing in short selling, global macro, and managed futures, they focus on specific risks that plummet the fund's exposure to general market risk by fifty percent. Hence, it can focus on streams with lesser correlation levels and lower volatility, making high and quick returns, which manages risks, cautioning investors from losses.
High returns are another reason to add hedge funds to a traditional investment portfolio. Hedge funds are run and managed by highly skilled managers who can pick out stocks with the potential to outer perform the market, bringing in higher returns above the market expectations. Hedge funds professional managers consistently employ their high skills to outer perform the market and generate alpha return components (Chen et al. 1084-86). Consequently, adding it to traditional investment portfolios assures investors of consistent positive performance. Their freedom of investment also predisposes them to generate high returns as they can capitalize on a rising market and offset the risk of their investments when the market is falling by investing in alternative markets. Moreover, their ability to reduce losses increases investors' returns. Hedge funds provide reliable returns, increasing the stabili...