A long position entails the purchase and holding of
securities by the
fund with the intention of selling these for a
higher price in anticipation of rising prices.
With short selling, the fund manger sells
equities that the fund does not own in the hope
of being able to buy the shares at a later date for a lower price, thereby profiting from the
decline in price. In this context, it is possible to distinguish between secured and
unsecured short selling. Secured short selling requires the seller to borrow the equities in
advance. Unsecured short selling is currently prohibited on the SIX Swiss Exchange and on many other exchanges.
Total return funds
Total return funds, also sometimes called absolute return funds or super funds, have
the objective of achieving a positive return year on year, irrespective of market performance. This
represents a departure from the normal
benchmark approach, which
measures the performance of a fund against a benchmark, i.e. whether the fund's performance is
better or worse than that of the index.
To achieve the objective of a sustained positive
return, the fund managers of total return
funds create a portfolio mix of equities, bonds,
derivatives and options. Depending on market
developments, the focus can be on relatively conservative bonds and money market investments
or on speculative investment types. The interest income from bonds serves as a risk buffer.
Many fund managers also use short selling. When prices are weak, they sell equities
that they do not own but which they have only borrowed in order to buy them back at a lower price.
The name "total return" often covers a range of investment approaches. The investment
horizon for absolute return funds is long term. The hedging instruments used are
expensive and the higher costs are only offset after a number of years.
Hedge funds are characterised
by a speculative investment strategy that has a high degree of risk but
which can also generate higher returns. Hedge funds typically invest in derivatives
and also make use of short selling. This gives the fund type its name because, in addition to
speculation, these instruments can also be used for hedging.
Hedge funds are subject to very minimal legal restrictions. The objective is to
increase the capital as much and as fast as possible.
This investment strategy focuses on buying the shares of companies which offer
above-average value relative to the current share price - in the form of higher equity
capital, good management structures etc. The concept behind this approach is that the market will
reflect this value and the shares will be bought. This will result in prices rising.
This strategy invests in shares of fast-growing companies; these are often young
companies and companies working with new technologies.