The Hillyard Stephen Group at RBC Dominion Securities uses modern portfolio theory (MPT) to construct, manage, and maintain our client's investment portfolios. MPT seeks to maximize investment returns for a given level of risk and does so through the use of multiple sophisticated investment vehicles.
One of the investment vehicles used by our team in the pursuit of an optimal risk/reward ratio are "Hedge Funds". These mandates are often misunderstood (and misused) so we thought we'd provide a brief overview of some of the key strategies utilized in the hedge fund world. Today we'll be discussing what is known as a "Market Neutral" equity strategy. We'll focus on some of the other hedge fund mandates in future blog posts.
A "Market Neutral" hedge fund strategy seeks to insulate its aggregate portfolio holdings from market volatility by taking both long (buying stocks with the hopes that they'll go up in value) and short (borrowing then selling stocks with the hopes that they'll go down in value) positions simultaneously in roughly equal weights. Theoretically, this minimizes exposure to systematic risk in the market while still allowing investors to profit from the individual trades within the fund.
The objective of these funds is to provide zero or negative correlations to the underlying equity markets, to produce strong risk adjusted returns, and to provide volatility that is lower than a long only equity mandate. Market neutral hedge fund mandates are typically only offered/available to accredited investors or to clients dealing with a fully discretionary portfolio manager such as our team. There are multiple market neutral mandates available in Canada, including a couple offered by RBC directly.
https://funds.rbcgam.com/alternative-investments/portfolio-updates/index.html
If you are interested in learning more about market neutral hedge funds, or hedge funds in general, please feel free to touch base with one of the members of our team. We'd love to speak with you.
Jeremy Stephen, BBA, CFP, CIM
Associate Portfolio Manager and Wealth Advisor
The Hillyard Stephen Group
RBC Wealth Management, Dominion Securities Inc.
500-730 View Street, Victoria, BC, Canada, V8W3Y7
250-356-3975
