What is a hedge fund?
A hedge fund is type of investment partnership using a variety of strategies to achieve their goal. The name comes from the word “hedge” which means reducing risk. A hedge funds goal is to maximize the return for their investors and at the same time reducing the risk if the investment.
Unlike mutual funds a hedge fund has much more freedom and flexibility when it comes to choose what to invest in, a hedge fund can invest in short positions to benefit from market decline and even currencies and real estate to create a well-diversified portfolio.
Unfortunately, it´s not possible for everyone to invest in a hedge funds since they have high minimal deposits and long lock in periods on capital, though you can still benefit from analyzing the quarterly reports all hedge funds are required to file with the SEC.
How can we track hedge funds?
Even though hedge funds are less regulated than mutual funds, they are required to file their holdings to the SEC every quarter through a report called 13F. The report must be filed with 45 days after the quarter end and contain all positions and values currently held by the fund. A lot of things can happen during those 45 days and the fund may have already changed their positions by the time of the filing, though many hedge funds have a long term strategy for their investments.
If you as an investor have a long terms goal with your investments, tracking hedge fund filings can be one component to use when constructing your portfolio.
Why track hedge funds?
First and utmost hedge fund managers are professionals at what they do and many of them are extremely successful at constructing portfolios that perform better than the market over time. While far from all hedge funds construct portfolios mainly of stocks there are many who do and perform very well over time.
KINFO tracks the performance your portfolio would get if you would hold exactly the positions a hedge fund files and rebalance according to each filing at the date when the filing is made. Furthermore, KINFO rates each hedge fund based on their performance in relation to the risk and shows you the average yearly return and a rating from 1 to 5 stars based on the risk profile.
How can you benefit from following hedge funds?
Looking at the actions hedge funds take on a stock can provide you with additional insight and provide further confirmation on an investment decision. If hedge funds are buying the stock, you are buying as well it means they probably believe the value will go up. By looking at the return and rating of hedge funds you can easily sort out those who have high returns on their long positions.
The amount of shares a hedge fund is buying can vary a lot dependent on how much capital the fund has in assets. In KINFO you will only see the change in percent related to their previous position as well as their portfolio allocation. This will give you a hint of how significant the action was independent of the size of the fund and how much they have in assets. When a hedge fund manager increases or decreases a position by a large amount in relation to their current position, it´s a more significant move and shows a strong belief, furthermore if a hedge fund have a large portion of their portfolio allocated to a stock it also shows a strong belief that the value will go up.
How do you know which hedge funds to follow?
KINFO tracks over 2000 hedge funds based on their filings to the SEC. Under the fund managers section, you can see which hedge funds have the highest average yearly return as well as the highest rating, meaning highest return in relation to risk. You can also view hedge fund owners on each stock page, this will show you which hedge fund who owns the particular stock as of their latest filing.