Organizations across the world invest their money in anticipation of obtaining returns in the future. Since risks characterise investments, managers should analyse their investment opportunities before they commit funds to projects. Notably, higher returns have been associated with riskier returns across all industries of the economy (Amihud & Goyenko 2013, p. 668). As the CEO of the company, I would like to follow a particular investment approach and spread portfolio in the future to reduce the overall risk. I look forward to investing in managed futures funds, bonds, and hedge funds.
Through investing in hedge funds, my firm will be protected from market uncertainties, and it will realize good incomes in good and bad markets, which are termed as “hedging” situations. This investment option does not correlate its returns with those achieved from other categories of assets; thus, it expands the extent of diversification in a portfolio. Moreover, these funds focus on achieving good returns in all types of markets; this has often been termed as the absolute return concentration. Hedge fund managers will utilize methods they are certain of increasing alpha since they will be skilled at making conclusions to exploit market trends (Sun & Teo 2019, p. 57).
Managed futures funds offer a firm an opportunity to diversify by providing exposure to categories of assets to prevent risk in a way that is impossible in investments such as bonds and stocks. These investments carry different weights concerning stocks and derivatives of doing business. If a company has a managed futures account, it gets exposure to several markets like currency and energy that trade in a given period. These funds can be traded using market-neutral or trend-following strategies. Trend-following approaches aim at profiting based on fundamentals or signals in conventional markets, while market-neutral methods rely on reaping from differences resulting from mispricing. According to modern portfolio theory, managed futures funds a lack of association with traditional investments increases portfolio robustness as well as reduces volatility without substantial negative effects on incomes (Fasano & Galloppo 2015, p. 450).
Although organizations may have several investments that provide returns, bonds have been shown to offer the highest incomes, which can be sustained for a long period (Fasano & Galloppo 2015, p. 451). Even in the contexts of low rates in the market, there are many options like emerging market debt as well as high-income bonds that a firm can choose to build a portfolio to achieve its income objectives. In addition, corporations, and governments issue bonds for specified durations during which they pay bondholders interests that are determined by the issuers at the time of offers. Upon the lapse of the agreed duration, an issuer repays the initial amount of the advanced loan. Since incomes got from bonds are relatively stable in comparison to those of stocks, they are expected to be less (Gurdgiev, Leonard & Gonzalez-Perez, p. 178). That notwithstanding, I believe stocks will be a better option for my company because they will guarantee specific and stable incomes in the future.
References
- Amihud, Y & Goyenko, R 2013 ‘Mutual fund’s R 2 as predictor of performance’, The Review of Financial Studies, vol. 26, no. 3, pp. 667-694.
- Fasano, A & Galloppo, G 2015, ‘Active Investing in BRIC Countries’, Procedia-Social and Behavioral Sciences, vol. 213, no. 7, pp. 448-454.
- Gurdgiev, C, Leonard, L & Gonzalez-Perez, MA (eds) 2016, Lessons from the Great Recession: At the Crossroads of Sustainability and Recovery, Emerald Group Publishing, New York, NY.
- Sun, L & Teo, M 2019, ‘Public hedge funds’, Journal of Financial Economics, vol. 131, no. 1, pp. 44-60.