Explore the alternatives

Exposure is not so bad


ast week I discussed the advantages of having some exposure to hedge funds in a portfolio. It may sound risky but as long as you do your due diligence and choose the appropriate hedge fund based on your risk tolerance, the strategy may potentially reduce overall risk in a portfolio.

Still, many investors prefer to stick to the “tried and true”: portfolios of stocks and bonds and/or mutual funds, using a strategy of buying and holding.

Personally, I would question how “tried and true” these strategies are — particularly when we look at the recent past. 

For example: if you invested in a diversified portfolio 10 years ago containing mostly the favoured asset classes of the day (bonds, Canadian, U.S., and international stocks or mutual funds), I wonder how satisfied you would be today — when you consider how weak some markets (i.e. U.S. stocks) have been, not to mention how the strength in the Canadian dollar would have affected non-Canadian investments.

If, on the other hand, you had had at least some exposure to hedge funds — funds that do not rely on a rising market to make money — you may have done better.

All this being said there is a problem with access. The best selection of hedge funds is only available to “accredited investors” — a term used to describe investors with a certain level of net worth or annual income.

However, the conditions are not as onerous as they may sound. 

If you consider it possible that you might be an accredited investor, it is worth exploring, as this could open the door to a wider variety of investment vehicles.

If not, there are alternatives. 

For example: in 2008 STAR Hedge Managers Fund was created that combined three of the leading hedge fund managers in Canada into one fund. There was no accredited investor requirement, and since its inception it has performed well. 

Similar offering may be available in the future. 

The other issue is whether your advisor is able to provide access to hedge funds, as there are educational requirements on the advisor side as well.

Mostly though, you need to look very carefully at what you are considering and make sure you understand how the fund will be managed as well as what the fees are.

For more, please feel free to call or email, or attend our upcoming presentation on hedge funds. 

To register call 250-594-1100, or e-mail paige.renouf@raymondjames.ca, or register online at www.jimgrant.ca.


Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only.  Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund. The views are those of the author, Jim Grant, and not necessarily those of Raymond James Ltd.  Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.

For more information feel free to call Jim at 250-594-1100, or e-mail at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.

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