In practice, however, hedge funds embrace a whole host of different strategies which may or may not hedge against market risk and to varying degrees. In fact, Alternative Strategies is a much better description of the actual operations of many of these funds as they differ from traditional long only equity or bond fund managers. Employ active hedging activities to reduce normal market risk. Active speculation on currencies, commodities or other non-traditional investment vehicles. Use Event Driven situations such as Mergers, Bankruptcies and Distressed securities.
Managers have access and ability to be long and short of stocks, bonds, futures, currencies, etc.
There is a host of these managers which operate in a similar style with varying degrees of success and risk levels. These macro styles of management, in which the manager has a wide variety of options, are gaining particular popularity in Asia and emerging markets as investors have been disappointed by the often dismal performance of long equity only investments. These funds have the ability to profit from both upward and downward movements in commodities and typically do well during strong bull or bear markets in any of these commodities. The obvious advantage to the investor is that these funds can act as a hedge against inflation or deflation risk as they can take advantage of price movements in the world' commodity markets. Most common in this category has been the merger arbitrage funds, where managers seek to be long and short of a particular pair of stocks, which are going through a likely merger process.