As it relates to investing, the term hedge can mean a lot of things depending on who you ask. Some definitions presented may be positive, some accurate and some way off the mark.
If we were able to resurrect Alfred Winslow Jones from the grave for a day and speak with him about his vision in establishing what is credited as the world’s first hedge fund, he might offer a very concise definition looking something like this…
A hedge fund refers to an investment structure and process which removes the importance of forecasting market direction on success thereby reducing risks on principal without giving up an ability to grow capital.
In fact, the fund that Jones and his partners created in 1949 was designed for wealthy investors who were intent on remaining wealthy – they wanted to continue to gain growth from their investments however did not want to be beholden to market risks and volatility. Jones established what he referred to as a ‘hedged’ fund (including the D on the end, which was dropped by a journalist profiling Jones and his fund in Fortune Magazine). His process and skill set were incredibly rewarding to investors, as demonstrated in risk management and returns.
Today, there are many highly skilled fund managers and teams available stewarding investor money in authentic hedge-D funds. We include these types of strategies in our defensive equity and defensive income sleeve within a diversified portfolio of investments. Hedge funds today can also be broadly although incorrectly portrayed to mean any fund that has looser constraints in an attempt to make money. The first question to ask is – what is being hedged, how and when? Without a clear process in risk management, there is no hedging.
Hope – not a strategy. By applying effective, proven risk management tools which includes hedging away risks, hope is no longer required. Confidence and assurance in financial security is the result.
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