What's the main difference between these? They are all "baskets" of stocks but are traded differently I believe right.
Hedge funds vs. ETFs vs. Spyders vs. Mutual Funds
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I can define hedge funds and mutual funds only... Hedge funds are highly aggressive, they go after everything. From bonds to bankruptcies and everything in between. Their primary goal is not to be a majority shareholder and to seek short to medium term investments. You have to be worth at least 2 million to invest and for some the minimum is 5 million (liquid assets only, so no real estate calculated in that). Hedge funds won't deal with blue chips for the most part. Hedge funds are usually considered high risk. Not so many hedge funds are public, since you'd have to disclose what you invest in and how much you made on it. Currently hedge funds are mostly unregulated (compared to other types of funds). Hedge funds, because of how competitive they are, are thought of as market correctors. Meaning they see a discrepancy in a particular stock (for example) and their actions usually (on a large scale) correct the discrepancy.
Mutual funds are slower growth but lower risk funds. They will invest in blue chips, stuff like Pfizer, IBM, Wal-Mart, etc... There are different levels you can choose when you look into a mutual fund, depending on how aggressive or risk adverse you want to be. Mutual finds generally barely beat the market growth. But you can still lose money with a mutual fund. These are regulated and quarterly and annually you'll get a list of what they invested in and how much they invested in it.
Mutual funds are slower growth but lower risk funds. They will invest in blue chips, stuff like Pfizer, IBM, Wal-Mart, etc... There are different levels you can choose when you look into a mutual fund, depending on how aggressive or risk adverse you want to be. Mutual finds generally barely beat the market growth. But you can still lose money with a mutual fund. These are regulated and quarterly and annually you'll get a list of what they invested in and how much they invested in it.
Hedge funds are very different; they offer greater risk, require larger investments and charge much higher fees then mutual funds. (Usually) Spyders are ETFs, which differ from Mutual funds in that they are closed end funds not open. With mutual funds you must redeem them with the fund to get your money back, and are sold with a load, (or sales charge) There are "no-load" funds, but they also have fees, just usually on the redemption side not on the purchase. There are also break points on mutual funds, meaning that you get a discount on the sales fee for buying a certain amount of the fund. ETFs, which include spyders, are closed end funds, meaning they are negotiable; you can buy and sell them on the market. This means you don't pay a sales charge, but rather a commission, and also it means you can sell them short.
So yeah, they are traded differently, and often are baskets of stock, but they don't have to be. They are baskets of different investment vehicles, i.e. bonds, commodities, derivatives, stocks, or whatever. If you?re trying to decide which is best for you, really, you should speak to a financial advisor.
So yeah, they are traded differently, and often are baskets of stock, but they don't have to be. They are baskets of different investment vehicles, i.e. bonds, commodities, derivatives, stocks, or whatever. If you?re trying to decide which is best for you, really, you should speak to a financial advisor.
To elaborate on points made so far in this thread, you seem to not be completely clear about mutual funds. There are really two main types of mutual funds, actively managed mutual funds and index funds. Actively managed funds have managers being paid to decide when and how much of various stocks to buy and sell, while index funds track a specific index of designated stocks and usually buy amounts strictly based on the market capitalization of the company, or in other words effectively buying based on how the market in general is valuing the company at the moment. Index funds adjust as the market does and reflects those returns. Contrary to SuepaFly's statement, many mutual funds can be relatively aggressive and invest in all sorts of stocks, (although they tend to be less risky than some hedge funds) its just they tend to be better regulated and its far easier to learn what the mutual fund is currently investing in. While active mutual funds may confine themselves to specific categories, they don't simply invest in all stocks in that category, while a index fund may do so.
ETFs are actually extremely similar to index funds, and Vanguard even sells ETF shares essentially identical to most of the index fund options. The main difference is a structural one in which you always buy ETF shares through brokerages like stocks instead of being able to directly invest shares through a mutual fund company. Since shares of ETFs are ordinarily sold to other investors, this means the index fund behind the ETF doesn't have to actually sell shares of stock when ETF shares get sold to someone else, (unlike what can be the case when someone wants to sell their mutual fund shares and gets money from the mutual fund company directly in return) this can help lower the fund's management expenses. Basically ETFs generally have lower expense ratios than regular similar index funds , but you do have the potentially expense of commissions when you buy and sell shares, and you do have to deal with some price volatility depending on whether investors in general are more interested in buying or selling those particular ETF shares at the moment. (It is true you can buy and sell ETFs at any time the stock market is open.) ETFs can effectively track really broad things such as the entire US stock market or even virtually the entire rest of the world's stock market minus the US, but they can also track a very specialized category of stocks with not that many stocks in that category. Spyders are simply ETFs sold by a specific company with many of them tending to be some specialized. A general warning is ETFs do tend to get more expensive expense ratio wise when they track a narrow category of stocks instead of a broad market index. One last point is some ETFs coming out now are "fundamentally weighted" instead of based on market cap for the designated index, this effectively makes them closer to actively managed funds since managers are effectively picking how much to buy based on the criteria they set and adjust their ETF with rather than simply tracking the market's views on valuations of various stocks.
Actually I'd say to be really careful with doing this. If you don't know what you're doing and are not dealing with a true "fee only adviser" they can sell you expensive funds with loads which are not a good option for you, but make the adviser a nice commission from kickbacks from the fund. Doing your own research is a much better idea. A good place to start if you have limited knowledge is the following link. (Free registration may be needed to see the articles I linked to, but its worth it if you need the knowledge. Check out the info in the first 4 categories of "getting started" for most of the key basic info, allot of the rest specifically involves individual stock picking.)
http://www.fool.com/school/basics/basics.htm
Good information from Aegon.
Hedge funds are really a completely different type of animal than the rest. Unless you have some serious cash laying around, hedge funds are not for you.
In addition to some of the things Aegon mentioned, depending on your financial situation, ETF's can have a significant advantage over mutual funds because of how they are set up and traded. If you own a mutual fund, you will likely get capital gains distributions at some point during the year regardless of whether you actually made money on the mutual fund. With an ETF, you do not incur capital gains until you decide to sell the ETF, which gives you more control over when and how you want to handle your gains.
An example to illustrate: lets say you buy 1 share of XYZ mutual fund in November at $100. Lets say at the end of December, your share is worth only $90 (market went down a little). You could still get a 1099 for capital gains even though you've really lost $10. Huh? Yep, that's correct, you could have to pay capital gains tax even though you did not gain anything with your share. The reason is that when you bought your share, the fund already had a certain amount of capital gains built in from the year.
Now lets say your share went to $110 instead of dropping to $90 and you hang on to your share (you don't sell it). At the end of the year, you will get a 1099 with capital gains, even if you haven't sold your share. With an ETF, neither of these things happen, you don't buy into the capital gains when you buy a share, and you only incur capital gains when you decide to sell your share (just like a regular stock).
Personally, I think ETF's make more sense than index funds for a variety of reasons (ability to short sell, trade like stock, better control of taxes, lower expense ratios etc), but you do have to pay trade comissions (something you don't have to do with mutual funds).
Hedge funds are really a completely different type of animal than the rest. Unless you have some serious cash laying around, hedge funds are not for you.
In addition to some of the things Aegon mentioned, depending on your financial situation, ETF's can have a significant advantage over mutual funds because of how they are set up and traded. If you own a mutual fund, you will likely get capital gains distributions at some point during the year regardless of whether you actually made money on the mutual fund. With an ETF, you do not incur capital gains until you decide to sell the ETF, which gives you more control over when and how you want to handle your gains.
An example to illustrate: lets say you buy 1 share of XYZ mutual fund in November at $100. Lets say at the end of December, your share is worth only $90 (market went down a little). You could still get a 1099 for capital gains even though you've really lost $10. Huh? Yep, that's correct, you could have to pay capital gains tax even though you did not gain anything with your share. The reason is that when you bought your share, the fund already had a certain amount of capital gains built in from the year.
Now lets say your share went to $110 instead of dropping to $90 and you hang on to your share (you don't sell it). At the end of the year, you will get a 1099 with capital gains, even if you haven't sold your share. With an ETF, neither of these things happen, you don't buy into the capital gains when you buy a share, and you only incur capital gains when you decide to sell your share (just like a regular stock).
Personally, I think ETF's make more sense than index funds for a variety of reasons (ability to short sell, trade like stock, better control of taxes, lower expense ratios etc), but you do have to pay trade comissions (something you don't have to do with mutual funds).
JEDI
Lifer
- Sep 25, 2001
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eft's are Exchange-Traded Funds. Here are Vanguard's. the kicker is that ETF's have a lower expense ratio than the corresponding mutual fund :Q
ie:
Vanguard's version of the s+p 500 = vfinx. it has an expense ratio of 0.18%.
The ETF equivalent is VV and has a ER of 0.07%. Instant .11% gain! but you also have to take into account the brokrage fee to buy the ETF (Ameritrade is $9.99/trade) where as most of Vanguard's mutual funds are free to buy and sell.
Spyders = s+p 500
diamonds = dow jones
QQQQ = Nasdaq 100 (Heavy Tech)
Just a correction. At this point there are no pure hedge-fund companies which are public. This will change once Fortress Investment Group (NYSE proposed "FIG") goes public soon.
As far as mutual funds. You are essentially paying somebody to manage stocks that you could do just by buying an index fund. Most of the time they can't even beat the market.
Just as a slight correction to what people have been saying about hedge funds, they are not all high risk investment vehicles. They are essentially just pooled money that is managed and traded by a firm. The strategies cover the whole spectrum of investing. It is true though that an individual must have a high level of net worth to invest in one in America. In fact, if you are a government employee of a state, there is a good chance that your states public employee pension fund has invested in hedge funds, and that's not necessarily because they are looking to take on risk. They are just seeking the higher returns that hedge funds have historically provided (however the spread between hedge fund returns and other asset classes returns have been shrinking). The sensational losses and gains that certain hedge funds generate news are not necessarily the norm.
There are few hedge funds that do not offer higher risk/returns. Most hedge fund vehicles do persue more speculative risky returns. Few seek level and moderate returns. Your statement that the spread between hedge funds vs not is shrinking is false. The sectors in which some hedge funds choose to enter are becoming less risky and thus less yieldy. This is a natural function of a lot of money entering into a sector where risky investments are finite. One side effect of this is that while these investments are less risky the "hedge fund" name sticks and thus is regulated like a hedge fund. In more normal terminology they wouldn't be hedge funds, if they were classified properly.
One only has to look at a company like Foretress to see that not all of their funds would classify as a "hedge funds" since many are more akin to lending to a slightly more risky company resulting in a higher yielding bond, which is normal (albiet some 401ks are limited to high quality bonds). This isn't neccessarily a hedge fund strategy, in the purest sense.
That isn't to say that hedge funds, in general, have less spread. Once you get into the truest definition the spread is alive and well and has not decreased significantly.
iversonyin
Diamond Member
- Aug 12, 2004
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Mutual funds- actively manage by fund managers- most of them try to beat an index. Only ~20% prevails. They can only buy stocks/bonds. They can not short sell.
ETFs/ SPY- Funds that track sectors or index. Passive investing. Offer the best expense ratio and diversification.
Hedge funds- actively manage by fund managers using all different type of strategies. Investors usually loaded with cash (pension funds and high net worth). Example of the strategies they might use: merger arbitrage, long/short equity, distressed debt. Ironically, most of these hedge funds aren't "hedge". They often seek "alpha"- greater return with similar type of risk. Although there's couple of huge blowups in the past (LTCM, Amarath), they are not as risky as people think they are. There was a fund of funds manager came to talk about hedge fund in my school. Only 4-5% of hedge funds blow up each year. Much less than what the media hype them to be.
EDIT: If you are looking to invest in stock, the best way to do its to buy ETFs. Low fees will not eat into your return as much as mutual funds. Hedge funds might generate good amount of "absolute return" but they usually charge 2%/20%. 2% asset/20% profit.
ETFs/ SPY- Funds that track sectors or index. Passive investing. Offer the best expense ratio and diversification.
Hedge funds- actively manage by fund managers using all different type of strategies. Investors usually loaded with cash (pension funds and high net worth). Example of the strategies they might use: merger arbitrage, long/short equity, distressed debt. Ironically, most of these hedge funds aren't "hedge". They often seek "alpha"- greater return with similar type of risk. Although there's couple of huge blowups in the past (LTCM, Amarath), they are not as risky as people think they are. There was a fund of funds manager came to talk about hedge fund in my school. Only 4-5% of hedge funds blow up each year. Much less than what the media hype them to be.
EDIT: If you are looking to invest in stock, the best way to do its to buy ETFs. Low fees will not eat into your return as much as mutual funds. Hedge funds might generate good amount of "absolute return" but they usually charge 2%/20%. 2% asset/20% profit.
New hedge funds spring up every day. Competition is greater and greater, this is why some just can't make it. There are more specialty hedge funds that are very sector oriented. For instance, one hedge fund this year lost money it's focus is oil. Also, with growing popularity, there are more and more billion dollar hedge funds out there, billion dollar hedge funds don't expect to earn 30% returns, 10% is an exceptional amount already.
So Hehatedme, the sensational losses and gains are actually fairly normal. There are people who closed up shop in May because YTD their losses were incredible. There are people who consistantly bring have 25% or greater years. But with size and specialty, the overall risk is less, so the potential for loss and gain is less.
Nerva
Platinum Member
- Jul 26, 2005
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dude, half of what you described as a "hedgefund" is actually private equity. a hedgefund is like a mutual fund that is less regulated because it caters to high networth people. it has a maximum in the number of investors (100), which is why minimum investments at hedgefunds are so huge. hedgefunds are not high risk per suepafly.
PE's report everything because they are more likely to hold a majority of stock (enough to have to file their holdings with the SEC). Hedge funds do file and generally do not buy enough to have to file anything. Which is what I said above. I think you were reading my mutual fund paragraph?
You're ignoring stock index mutual funds, see Aegeon's post. Vanguard.com and others have passively managed index funds as their main business.
ETFs don't automatically have a lower expense ratio than index mutual funds, you need to compare on a case by case basis.
Cramer Berkowitz charged 1% of total assets under management.
Now, the industry average is 2%.
Expenses expressed as a ratio with a mutual fund: as low as .75 as high as 2.25
Mutual fund you can buy into regularly like vanguard... some hedgefund has a 3 year lock up.. or 5 or 10... so once you invest, kiss your cash goodbye...
Hedgefund are also shady.. i know cuz i'm at my 2nd one... going to the third in a few days... If you guys read Hedgefund Alert.. i can probably post one up.. people do illegal things... get caught, go to jail, etc..
Hedgefund are also shady.. i know cuz i'm at my 2nd one... going to the third in a few days... If you guys read Hedgefund Alert.. i can probably post one up.. people do illegal things... get caught, go to jail, etc..
there isn't a maximum amount investor, i'm looking down my contact list, I have 940 companies invested and over 2700 contacts here
iversonyin
Diamond Member
- Aug 12, 2004
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