In an earlier post, we saw that hedge funds tend to deliver better investment results over time, both in terms of higher returns as well as lower risk. We also saw that hedge funds have various advantages exclusive to the rich, which helped the rich get richer. The good news is that these advantages are now also available to retail investors. Unlike in the past, you can now employ hedge fund strategies in your investments!
Want to know what made this possible? Here are the 2 big reasons why.
Product Innovation
In the past, hedge funds tend to exclusively build better portfolios because they’ve simply had more tools at their disposal. They were able to trade instruments that were not available to retail investors. As a result, they could trade a lot more things, giving them access to strategies the rest of the market could not employ.
Hedge funds can trade asset classes including bonds, commodities, and volatility. As time passed, with the invention of ETFs, retail investors now also have access to many of these asset classes as well. For example, investors who want exposure to US treasuries have used NASDAQ: IEF or NASDAQ: TLT to do so. Those who want exposure to gold have long started using NYSE Arca: GLD, and for direct exposure to volatility, BATS: VXX. For broad exposure to international stocks, there are many country ETFs too. The tools for building a more efficient portfolio are now available at a very cheap cost to retail investors. The iFAST platform offers a large variety of these ETFs and they can be utilized to build portfolios that deliver returns similar to hedge funds.
Fintech
Direct access to hedge funds has always been a privilege afforded to only the rich. It is still the case today. However, Fintech has begun to rapidly bridge the gap between hedge funds and retail investors. Together with the quickly growing availability and use of instruments used for trading mentioned in the section above, Fintech has now helped retail investors gain access to non-traditional investment strategies. And of course, this includes hedge fund strategies! All that’s left is for a professional to share with you when and what to trade, and you’ll be on your way to having those hedge fund returns.
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