Get Started

Hedge Fund Investment Strategy

Hedge funds use various investment strategies to generate returns for investors, and as an investor, you'll also need an overall strategy for which fund to invest in. Let's have a look at which strategies hedge funds employ, how you can get a piece of the pie and how CARL's quants are the optimal vehicle for any hedge fund investment strategy.

Start investing with CARL now

Apple store buttonGoogle play button

What Are the Most Common Hedge Fund Strategies?

In many ways, hedge funds are investors in their own right. It's the fund that puts money into various assets and asset classes with the goal of generating returns. Thus, you're effectively investing in an investor to make investments on your behalf. This means that hedge fund managers follow specific investment strategies just as you would when deciding which assets, asset classes, and alternative investments you want to put your money in.

Remember that no two hedge funds are exactly alike. Understanding how they impact your portfolio (and, by extension, your investment strategy) requires you to understand how their unique strategies work.

This means that the specific strategy that the hedge fund manager follows can also impact which strategy you follow when you decide which funds to put your money into. For example, a high-risk fund that barely uses any hedging strategies and operates under great volatility to maximize returns, likely adds a lot of risk to your portfolio. If you're thinking about investing in this fund, you'll want to adapt your own strategy accordingly by adding a couple of "safe bets" to your portfolio, limiting the overall risk you're exposed to. So let's look at some of the most common hedge fund investment strategies and find out how to treat them as part of your portfolio.

Long/Short Equity

By far the most traditional investment strategy for hedge funds, long/short involves taking a short position in (or "short-selling") stocks that are likely to lose value while taking long positions in stocks that are set to increase in value. This is commonly called a hedge or hedging strategy, as the short positions protect the fund from market exposure. In other words – If there's a market-wide event that causes the value of all assets to decrease, the decrease in value of the long position can be offset with the short position. This effect makes this a strategy that's relatively low-risk while limiting the maximum returns you're likely to get – a more aggressive investing strategy may generate greater returns, but at an increased risk.

One variation of the long/short equity model is called "market neutral". In this strategy, hedge fund managers hedge all of their long positions with short positions, creating net-zero market exposure. This is a way to further decrease the overall risk, since most other long/short strategies don't hedge all of their long positions, incurring net long market exposure. Market neutral isn't particularly popular in the hedge fund industry, though, as this strategy further lowers the potential gains the fund can make.


Arbitrage means buying and selling an asset in two different markets to take advantage of price differences in the two markets at the same point in time. For example, if the price of a particular stock on the New York Stock Exchange is higher than on the Tokyo Stock Exchange, a hedge fund may buy the stock in Tokyo and immediately sell it in New York to gain the difference in price.

There are various types of arbitrage, such as merger arbitrage, fixed-income arbitrage, or convertible arbitrage, which all follow the same principle (exploiting differences in pricing).

Swing Trading or Day Trading Strategies

Swing and day trading are two methods of investing that are frequently used by individual investors to produce returns over the very short term (day trading) or over weeks or months (swing trading). Both of these strategies attempt to determine how an asset's price may change over time before buying the asset at the point of lowest cost and reselling it after the price has reached its peak.

Event-Driven Strategies

These strategies try to anticipate events such as mergers, buy-outs, or even financial crashes, buying and selling assets accordingly. Event-driven strategies tend to come with a certain amount of risk, and they're also very long-term. Event-driven strategies require discipline because the events in question may take months or years to conclude, which is why many hedge fund industry veterans don't base their investments on events in the first place.

Global Macro

Global macro funds follow macroeconomic trends, attempting to anticipate changes in the prices of currencies, assets, etc. As such, they often incur significant volatility and market risk. This can make investments in global macro funds fickle – you should either be wealthy enough to afford a loss or have diversified your portfolio enough to offset any potential losses from the hedge fund. That being said, the additional risk comes with a great potential for significant returns.

Get Access

Tearing Down Barriers to the Alternative Investment Universe

CARL provides you with a selection of thrilling alternative investment opportunities you might never have heard of before. Build your wealth and diversify your portfolio with alternative investments – anywhere, anytime, with one easy-to-use mobile app.

How CARL works

How Does the Quantitative Approach Fit Into This?

If you're already familiar with the high-performance quantitative funds available via the CARL app, you may wonder – is the quantitative approach another type of hedge fund strategy? The truth is, the quantitative approach can be a part of any strategy. Quants use computer-based market modeling, machine learning, and sophisticated algorithms to make investment decisions – but they don't determine the investment strategy.

So, for example, a long/short fund may use computer algorithms to determine which assets it will take long positions and short positions in, but it still follows a long/short investment strategy. "Quantitative" is thus more of a template that can be applied to any hedge fund strategy – it simply means the decisions within the confines of the fund's overall strategy won't be made by hedge fund managers but by advanced computer systems.

Under most circumstances, applying quantitative decision-making further optimizes the performance of any given hedge fund, as demonstrated by the fact that quants have frequently outright outperformed manager-led funds. Quants offer:

  • Less risk by eliminating human intuition from the equation
  • Greater returns by taking advantage of even the most minute opportunities

Sophisticated Alternative Investments Aren’t Just for Institutions Anymore

Partner with CARL

Strategies for Investors – How to Invest in Hedge Funds

First and foremost, you need to recognize that investing in a hedge fund always comes with a certain amount of risk. And while hedging strategies can diminish that risk, it can never be fully negated. Hedge fund strategies are riskier alternative investments to traditional investments such as mutual funds or ETFs. They offer a much greater reward, but they expect you to be able to handle some risk at the very least.

That's why risk management is the most important thing for a portfolio, this includes hedge funds. When creating your hedge fund investing strategy, consider diversification. By also investing some of your money in risk-free vehicles such as bonds or low-risk endeavors such as registered stock, you can try to make sure you'll get some returns out of your overall investment portfolio, even if your chosen fund may struggle. You can also diversify your portfolio by investing in multiple hedge funds, one high-risk and high-reward, the other using hedging strategies to limit the risk you're exposed to. CARL makes this easy by lowering the minimum investment in any of the sophisticated quants available via the app to $20,000. This allows you to invest smaller sums into different hedge funds.

You should also be aware that most hedge funds have long lock-up periods, requiring you to wait 6 months or more before you can withdraw your investment. This makes hedge funds very illiquid investments – once you're in, you're in and you can't leave quickly if you're in need of your money. Meanwhile, CARL's quants have no lock-up periods, allowing you to withdraw money on a monthly basisThis significantly lowers the investment risk, as you can simply withdraw from our quants if you feel they're going in the wrong direction. For example, if a hedge fund suddenly starts investing in riskier and riskier assets, increasing the overall risk to your portfolio, you can simply withdraw your investment with the CARL app – had you invested in other hedge funds outside of the CARL app, you'd now be sitting on a massively imbalanced portfolio until you can finally withdraw from the investment.

Get Started

3 Easy Steps to Start Investing With CARL

Investing in quants is as easy as pie if you've got CARL on your side. Investors can set up an CARL account quickly and easily.

Set Up Your Account

Quickly and securely create your account, verify your investor status and become a member of our community.

Analyze Investments

Using the tools within the CARL app, determine which strategies at what allocations are right for your investment goals.

Fund Your Investment

Simply save your portfolio settings and on the next strategy funding cycle your investment will be live!

Benefit From Investing With CARL

No matter how you build your investment portfolio or which strategies your chosen funds use, investing with CARL provides you with numerous benefits over other hedge funds. With lower minimum investment levels and no lock-up periods, diversification has never been easier and the quantitative approach minimizes risk while maximizing potential returns, leading our quants to have targeted returns of 15%+. Check out our individual quantitative hedge fund strategies to see if they fit into your investment strategy, and set up your CARL account today. With the CARL app, you have a library of informaion in your hands and can quickly become a confident investor. You’ll have all the tools you’ll need to remain in complete control over your investing activities.

Ready to Invest in Alternatives?

Partner with CARL

Was this information useful?
(3ratings, Ø 4.7)