Chartered Investment Manager (CIM) Practice Exam · Question
What distinguishes absolute return hedge funds from traditional long-only equity funds?
Absolute return hedge funds employ a variety of complex strategies, including short selling, derivatives, and leverage, to generate positive returns in both ris
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Question: What distinguishes absolute return hedge funds from traditional long-only equity funds?
Answer options:
- Absolute return hedge funds only invest in government bonds. ✅ Absolute return hedge funds aim to generate positive returns regardless of market direction, using various strategies including short selling and derivatives.
- Traditional long-only equity funds use leverage extensively, while hedge funds do not.
- Hedge funds are typically more transparent about their holdings than traditional funds.
Correct answer: Absolute return hedge funds aim to generate positive returns regardless of market direction, using various strategies including short selling and derivatives.
Explanation: Absolute return hedge funds employ a variety of complex strategies, including short selling, derivatives, and leverage, to generate positive returns in both rising and falling markets, whereas traditional long-only funds primarily bet on market appreciation.
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