Markets
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
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
| Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
|---|---|---|
| EURO STOXX 50 | 14.9 | 2.2 |
| STOXX Europe 600 | 14.4 | 2 |
| U.S. | 25.9 | 4.7 |
| Canada | 16.1 | 1.8 |
| Japan | 15.4 | 1.6 |
| Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
| EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
|---|---|---|---|---|---|---|
| EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
| STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
| U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
| Canada | 1.00 | 0.22 | 0.40 | |||
| Japan | 1.00 | 0.88 | ||||
| Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
| Index | Description | Market Cap |
|---|---|---|
| STOXX Europe 600 | Pan-regional, broad market | €10.5T |
| STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
| STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
| STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
| EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
-
Economy23 hours agoEconomic Growth Forecasts for G7 and BRICS Countries in 2024
The IMF has released its economic growth forecasts for 2024. How do the G7 and BRICS countries compare?
-
Markets1 week agoU.S. Debt Interest Payments Reach $1 Trillion
U.S. debt interest payments have surged past the $1 trillion dollar mark, amid high interest rates and an ever-expanding debt burden.
-
United States1 week agoRanked: The Largest U.S. Corporations by Number of Employees
We visualized the top U.S. companies by employees, revealing the massive scale of retailers like Walmart, Target, and Home Depot.
-
Markets2 weeks agoThe Top 10 States by Real GDP Growth in 2023
This graphic shows the states with the highest real GDP growth rate in 2023, largely propelled by the oil and gas boom.
-
Markets2 weeks agoRanked: The World’s Top Flight Routes, by Revenue
In this graphic, we show the highest earning flight routes globally as air travel continued to rebound in 2023.
-
Markets2 weeks agoRanked: The Most Valuable Housing Markets in America
The U.S. residential real estate market is worth a staggering $47.5 trillion. Here are the most valuable housing markets in the country.
-
Mining1 week agoGold vs. S&P 500: Which Has Grown More Over Five Years?
-
Markets2 weeks ago
Ranked: The Most Valuable Housing Markets in America
-
Money2 weeks agoWhich States Have the Highest Minimum Wage in America?
-
AI2 weeks agoRanked: Semiconductor Companies by Industry Revenue Share
-
Markets2 weeks ago
Ranked: The World’s Top Flight Routes, by Revenue
-
Demographics2 weeks agoPopulation Projections: The World’s 6 Largest Countries in 2075
-
Markets2 weeks ago
The Top 10 States by Real GDP Growth in 2023
-
Demographics2 weeks agoThe Smallest Gender Wage Gaps in OECD Countries