What is the difference between a hedge fund and a managed fund?

by

One would assume that hedge funds and managed funds are the same thing. This is because both are a managed portfolio of shares. However, the objectives of both are different and this is what sets them apart. Below we outline the differences between a hedge fund and a managed fund.

Managed Funds

  • These usually have specific objectives such as investment in a specific asset class or investment strategy. You can invest in managed funds that hold equity, bonds or alternative investments.
  • You can invest in actively managed funds which means the portfolio manager is trying to outperform the market. Passive funds are funds which usually just track a particular index.
  • Managed funds are targeted to the general public as their minimum investment isn’t too high.
  • The time horizon with most managed funds is longer than hedge funds as it can be years.
  • Managed funds are highly regulated. They must implement the strategy the fund has set to do.
  • Managed funds only charge management fees.
  • Managed funds allow investors to withdraw funds as any time.

Hedged funds

  • Hedge funds are mostly actively managed and they try and beat the market.
  • They can make money in an up market as well as a down market through short selling or use of derivatives.
  • Hedge funds can use borrowed money to invest so they can increase performance but this also adds risk to the investment.
  • They require very large initial deposits so they may only be available to high net worth individuals or sophisticated investors.
  • These funds charge a management fee as well as performance fee.
  • Hedge funds have less regulations than managed funds. There is more flexibility for the hedge fund manager to adjust the strategy if they see it as necessary.
  • Hedge funds have a short time horizon.
  • They tend to perform better than managed funds.
  • Hedge funds may require a minimum period for the investment to be held in the fund.

 

Lauren Hua is a private client adviser at Fairmont Equities.

 An 8-week FREE TRIAL to The Dynamic Investor can be found HERE.

Would you like us to call you when we have a great idea? Check out our services.

Disclaimer: The information in this article is general advice only. Read our full disclaimer HERE.

Like this article? Share it now on Facebook and Twitter!