Infographic: Hedge Fund Strategies, but for Normal Investors
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How Normal Investors Can Use the Same Strategies as Hedge Funds

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How Normal Investors Can Use the Same Strategies as Hedge Funds

How Normal Investors Can Use the Same Strategies as Hedge Funds

In a Warren Buffett note from 2006, he credits the famous value investor Benjamin Graham as the co-creator of the first-ever hedge fund in the mid-1920s.

“It involved a partnership structure, a percentage-of-profits compensation arrangement for Ben as general partner, a number of limited partners and a variety of long and short positions,” Buffett’s letter says.

That means that hedge funds have been around for nearly a century – and they have almost exclusively existed as a vehicle for institutions and wealthy, private investors.

Alternative Investments

The initial use of the hedge fund was to “hedge” specific investments against the general volatility of the market. Despite this namesake, today hedge funds use a number of strategies to target gains.

While retail investors rarely had access to these types of strategies, today it is possible to buy mutual funds or ETFs that try to emulate similar tactics. These alternative investment funds, or alt-investments, come in mainly two varieties:

Return Seekers: Designed to help boost performance by opening up new opportunities to investment, such as private equity or global infrastructure.

Risk Managers: Designed to help smooth performance when markets turn choppy. Strategies include long/short equity, merger arbitrage, managed futures, and other hedge fund strategies.

Today’s Market

The key here, in our opinion, is that these strategies may allow investors to diversify out of traditional markets such as stocks and bonds.

The timing for alternative investments could be good as well, as the start to 2016 was the worst in history for markets and the average investor already lost 3.1% in 2015.

Although funds specializing in alt-investments typically have significant diversification benefits, they also usually come with higher fees in comparison to more traditional offerings. Investors should weigh the cost-benefit accordingly.

Original graphic by: ProShares

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Markets

The Top Google Searches Related to Investing in 2022

What was on investors’ minds in 2022? Discover the top Google searches and how the dominant trends played out in portfolios.

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Trend lines showing when the top Google searches related to investing reached peak popularity over the course of 2022.
The following content is sponsored by New York Life Investments

The Top Google Searches Related to Investing in 2022

It was a turbulent year for the markets in 2022, with geopolitical conflict, rising prices, and the labor market playing key roles. Which stories captured investors’ attention the most? 

This infographic from New York Life Investments outlines the top Google searches related to investing in 2022, and offers a closer look at some of the trends.

Top Google Searches: Year in Review

We picked some of the top economic and investing stories that saw peak search interest in the U.S. each month, according to Google Trends.

Month of Peak InterestSearch Term
JanuaryGreat Resignation
FebruaryRussian Stock Market
MarchOil Price
April Housing Bubble
MayValue Investing
JuneBitcoin
JulyRecession
AugustInflation
SeptemberUS Dollar
OctoberOPEC
NovemberLayoffs
DecemberInterest Rate Forecast

Data based on exact searches in the U.S. from December 26, 2021 to December 18, 2022.

Let’s look at each quarter in more detail, to see how these top Google searches were related to activity in the economy and investors’ portfolios.

Q1 2022

The start of the year was marked by U.S. workers quitting their jobs in record numbers, and the effects of the Russia-Ukraine war. For instance, the price of crude oil skyrocketed after the war caused supply uncertainties. Early March’s peak of $125 per barrel was a 13-year high.

DateClosing Price of WTI Crude Oil
(USD/Barrel)
January 2, 2022$76
March 3, 2022$125
December 29, 2022$80

While crude oil lost nearly all its gains by year-end, the energy sector in general performed well. In fact, the S&P 500 Energy Index gained 57% over the year compared to the S&P 500’s 19% loss.

Q2 2022

The second quarter of 2022 saw abnormal house price growth, renewed interest in value investing, and a bitcoin crash. In particular, value investing performed much better than growth investing over the course of the year.

IndexPrice Return in 2022
S&P 500 Value Index-7.4%
S&P 500 Growth Index-30.1%

Value stocks have typically outperformed during periods of rising rates, and 2022 was no exception.

Q3 2022

The third quarter was defined by worries about a recession and inflation, along with interest in the rising U.S. dollar. In fact, the U.S. dollar gained against nearly every major currency.

Currency USD Appreciation Against Currency
(Dec 31 2020-Sep 30 2022)
Japanese Yen40.1%
Chinese Yuan9.2%
Euro25.1%
Canadian Dollar7.2%
British Pound22.0%
Australian Dollar18.1%

Higher interest rates made the U.S. dollar more attractive to investors, since it meant they would get a higher return on their fixed income investments.

Q4 2022

The end of the year was dominated by OPEC cutting oil production, high layoffs in the tech sector, and curiosity about the future of interest rates. The Federal Reserve’s December 2022 economic projections offer clues about the trajectory of the policy rate.

 202320242025Longer Run
Minimum Projection4.9%3.1%2.4%2.3%
Median Projection5.1%4.1%3.1%2.5%
Maximum Projection5.6%5.6%5.6%3.3%

The Federal Reserve expects interest rates to peak in 2023, with rates to remain elevated above pre-pandemic levels for the foreseeable future.

The Top Google Searches to Come

After a year of volatility across asset classes, economic uncertainty remains. Which themes will become investors’ top Google searches in 2023?

Find out how New York Life Investments can help you make sense of market trends.

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