Investment analysis Essay Example | Topics and Well Written Essays - 2000 words

Investment analysis - Essay Example Hedge Fund is an investment partnership of limited wealthy investors or institutions. The minimum investment requirement for entering a hedge fund is much higher than many other investment options. It is also a highly illiquid investment as the fund stays invested at least for a period of one year. Hedge fund is as similar as a mutual fund but differs in quantum of its investments and number of its participants. It is also less regulated than a mutual fund. Hedge funds are managed by a team of experts headed by portfolio managers. Most of the investors will have a say in the management of the fund. This essay will give a brief idea about the strategies adopted by hedge funds for managing funds and the implication of its operations in the overall financial sector. Hedge funds and its mode of operation Hedge funds operate in various methods to handle investment risk. There are several strategies being adopted by Hedge Funds to minimise the investment risk. Some of the most important st rategies are Long/Short Equity, Global Macro, Event Driven, Emerging markets, Equity Market-Neutral, Convertible Arbitrage, Fixed-Income Arbitrage, Short Sellers and Managed Futures. These strategies will be dealt in detail further. Long/short equity: As the name implies this strategy involves taking both long and short positions on stocks. The core concept of this strategy is to go short on overvalued stock and long on undervalued stocks. This strategy is adopted to make profit irrespective of whether the market rise or fall. It is used by hedge fund managers to make profit on both sides. The undervalued stock will increase in value to make profits while at the same time the value of overvalued stock will come down thus making profit on its short positions. â€Å"Thus, the goal of any equity long-short strategy is to minimise exposure to the market in general, and profit from a change in the difference, or spread, between two stocks.† (Barclay Hedge, 2011) Global Macro: Glob al Macro is a more sustainable investment strategy in the sense that it is based on top down analysis or the fundamentals. As the name signifies, this strategy considers the macro economic variables. Company specific investments are also based on factors like management quality, market share, company profits, market competition, financial position, and the like. This strategy also invests in all kinds of investment options like equities, commodities, currencies, etc. Hedge fund managers also hedge such portfolio with the use of necessary derivatives and other instruments. This has been proved to be one of the most successful strategies adopted by Hedge Funds. Event Driven: â€Å"An event-driven investment manager is typically looking to invest in situations where there is some form of corporate activity or catalytic change taking place.† (Leary, 2004) The events include mergers and acquisitions, bankruptcy, asset sales, or any other restructuring pertaining to a particular co mpany. Hedge fund managers predict the movement of the share price based on the nature of the event related to the company. For example a possibility

Issues That Lead to the Recession Term Paper Example | Topics and Well Written Essays - 2500 words

Issues That Lead to the Recession - Term Paper Example What are the correct investments in a recession and the revised policies and procedures put into operation by the government to combat recession. Thirdly, this report will discuss the impact of the recession and the lessons learnt from it. Definition of Recession â€Å"The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.†(Business†¦.) â€Å"A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. ... With the steep rise in the unemployment levels, the government is obliged to extend unemployment benefits to a wider section of the society. Higher borrowing leads to higher taxes and additional interest payments in the future. As shares turn unattractive, the prices begin to dip. Lower profitability and lower dividends create a depressive mood for the investors and they look out for alternative sources of investment. The fall in share prices continues in anticipation of recessionary trends prolonging. But this is only the initial phase. When recession is at its hardest phase, the developments take a strange turn. In anticipation of economic recovery, share prices begin to recover, as the prudent investor calculates that it is the favorable time to invest from the point of view of long term gains. Falling prices of shares may be due to various other factors as well, not alone recession. The normal reaction to recession is that it should result in a lower inflation rate. The highlight of recession is it reduces demand and wage inflation. The issue to be examined is what economic factors impact the recession hard. The current recession is due to rise in oil prices. The expert opinion about this inflation is, it is bound to reduce demand, will result in price wars, as the firms will make all-out efforts to retain consumers. The scenario of falling investments takes volatile shape and hampers economic growth. The vicious circle begins. The slowdown in the growth rate, with the economy expanding with a slower pace, may result in substantial fall in investment. Fall in employment opportunities is the most feared factor during recession. The demand for labor takes a down turn. Not all sectors are impacted hard in equal measure