Do hedge funds and mutual funds invest in commodities in high inflation environments?

By Investopedia Staff AAA
A:

Hedge funds and mutual funds are very different types of investment vehicles.

The contents of a hedge fund are determined by the hedge fund manager and the investment guidelines set out by the financial institution he or she works for, if there is one. Hedge fund managers are very sophisticated investors who tend to embrace risk as long as there is return potential to compensate for that risk. Depending on the nature of the fund and the manager, it is quite likely that a hedge fund would invest in commodities, especially in a high inflation environment when prices for commodities such as precious metals, energy and real estate usually increase substantially. Investing in commodities in a high inflation environment is usually a wise investment. One caveat here is that hedge funds and hedge fund managers may invest in anything they see as a wise investment.

The contents of a mutual fund are determined by the fund manager and the investment company offering the fund. Mutual funds can be invested in many things such as stocks, bonds and indexes, which may or may not be tied to the commodities market. As with hedge funds, mutual funds invested in stocks linked to the commodities market will perform well in high inflation environments because the price of commodities tends to increase in high inflation environments, although each mutual fund and fund manager is very different in its investment philosophies.

In short, if you are one of the lucky investors whose hedge fund or mutual fund manager has the foresight to predict inflationary changes in the economy, then it is likely that a portion of your investments is dedicated to commodities, or commodity-related stocks.

(For further reading, see our articles Commodities: The Portfolio Hedge and Corporate Use Of Derivatives For Hedging.)

RELATED FAQS

  1. When do economists use GNP?

    Learn about the ways economists use GNP. Find out how the Bureau of Economic Analysis monitors U.S. economic performance ...
  2. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ...
  3. Does cash-on-delivery aid produce better results than a loan?

    Learn of the arguments about the efficacy of cash on delivery, or COD, aid to poor areas, as set forth by its proponents ...
  4. What are some alternatives to real GDP?

    Learn about economic measures used instead of real GDP and the limitations of real GDP. Find out in which situations nominal ...
RELATED TERMS
  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Nordic Model

    The social welfare and economic systems adopted by Nordic countries.
  3. Historic Pricing

    A method for calculating the value of an asset using the last ...
  4. Steve Cohen

    A trading magnate also referred to as the Hedge Fund King and ...
  5. David Tepper

    A legendary investor who specializes in distressed debt and manages ...
  6. David Einhorn

    Known for his short selling strategy, activist investor David ...

You May Also Like

Related Articles
  1. Investing

    Is the Best Plan for Pot Investing 'Wait-and-see?'

  2. Mutual Funds & ETFs

    Are These the Top Inverse ETFs of 2 ...

  3. Stock Analysis

    How Are Interest Rates Affecting Annaly ...

  4. Options & Futures

    Give Yourself More Options With Real ...

  5. Investing

    What Has Been Groupon’s Growth Strategy?

Trading Center