Mutual & Hedge Funds: Investing in Profitability & Diversification - Essay Sample

Introduction

Hedge and mutual funds are managed portfolios of pooled funds to attain profits through diversification. The manager or managers used to use investment principal from several investors and participate in other sanctuaries that are in alignment with his objectives. Institutional endowment managers usually offer mutual funds that are open with options for investors, both institutional and retail. Hedge funds are generally targeted at investors with high net-worth (Grinblatt, et al., 2020). The investors are required to meet certain characteristics before they are considered.

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Mutual funds are the ones generally known in the asset industry, with the earliest being generated in 1924 and presented by MFS Investment Management. They have subsequently transformed to help investors with their wide range of options. Through passive funds, investors can spend in an index for aimed at market publicity at a low rate. Active, on the other hand, offers a venture that offers the advantage of expert portfolio managing of funds. Mutual funds are controlled by Securities and Exchange Commission through the Investment Company Act of 1940 Securities Act of 1933.

Hedge funds partake similar elementary pooled find organization as their counterparts, but only that they are offered in private. They typically go for higher risk positions to get higher gains. They are thus likely to use advantage, options, short selling coupled with other replacements. They have also managed more aggressively as compared to mutual funds. They are capable of looking for global cyclical positions and seek to gain on failing markets. They are structured and regulated differently from mutual funds as they only involve accredited investors and provides for them to build the structure of their funds. The reason behind allowing accredited investors is because they are knowledgeable in matters investing with high-risk probabilities.

BlackRock Funds, also known as iShares, is a New York-based company that made its first release of the mutual funds in the year 1998 together with PNC Financial Services Group. The next two years saw to it that the company's funds had grown because of their policy on the elaborate risk management theory of management of funds. The shareholders enjoy the laser-likened focus on risk when it comes to economic downturns. The company was a leader in MBS investment before the financial crisis. The share was released a few months before the onset of the crisis. The company's shares, however, survived the crisis. The US government bailed the company out during the crisis and even consulted its managers on how to keep the financial system running the mid-crisis panic (Megginson & Fotak, 2020). The company has been successful in dealing with economic downturns, including the recent coronavirus pandemic. The company is reducing its global equity and credit exposure to neutral in dealing with the financial crisis due to the virus.

Bridgewater Associates is a company based in Westport, Connecticut, founded by Ray Dalio in 1975. It is the world's largest hedge fund firm with $150 billion in total AUM and $130 billion in assets whose clientele consists of charities, central banks, pensions, and college endowments. The company has navigated recent economic downturns successfully except the coronavirus pandemic induced one. The funds of the company and investments have been on the downturn (Tsai, 2020). The founder claims that they did not know how to deal with the coronavirus pandemic as they thought they had no edge in trading it. The company is experiencing massive losses due to the virus.

References

Grinblatt, M., Jostova, G., Petrasek, L., & Philipov, A. (2016). Style and skill: hedge funds, mutual funds, and momentum. Mutual Funds, and Momentum (July 16, 2016).

Megginson, W. L., & Fotak, V. (2020). Government Equity Investments in Coronavirus Rescues: Why, How, When?. How, When.

Tsai, C. (2020). Personal Risk and Societal Obligation Amidst COVID-19. Jama, 323(16), 1555-1556.