Hedge Fund Strategies: Geographic Orientations

Hedge fund managers use a wide variety of trading strategies with differing levels of risk and return. Overall, their primary goal is to generate positive returns regardless of market conditions.

There are dozens of hedge fund strategies and sub-strategies within those categories. Complicating matters is that there is no standardized system of classifying hedge funds that is widely accepted by industry members. However, there are clearly some hedge fund managers who take more of a geographical orientation to their investment strategies. Some may focus on a particular region of the world, such as North America, Europe, Asia or Africa. Others zero in even further and focus on specific countries such as China, Japan and India.

An approach that involves a heavy concentration of investments, usually stocks, within one single country or a few specific countries in a region is commonly referred to as a “country-specific” hedge fund strategy. HedgeFundIntelligence.com reveals the variety of approaches that can exist even within this narrow range of geographic targeting. For example:

AsiaHedge Indices
AsiaHedge Composite
Asia ex Japan – USD 
Asia inc Japan – USD
Australian Long/Short Equity
Chinese Long/Short Equity  
Indian Long/Short Equity  
Japan Long/Short Equity
Japan Long/Short Equity

To name just a few. (Source: http://www.hedgefundintelligence.com/)

Someone with a hedge fund job as an equity hedge fund manager may even hedge against downturns in a particular country by shorting what he feels are overvalued stocks or indices in that country, while going long in the equities of another country which he feels are undervalued.

Emerging Markets

Emerging markets describes a hedge fund strategy that focuses on countries in the process of rapid growth and industrialization. There are currently 28 emerging markets in the world, with Brazil, Russia, India and China (nicknamed the BRIC countries) representing largest among them.

Next time, we’ll look at the size of emerging markets hedge funds and some of the strategies they employ.

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