A high-net-worth individual, concerned about market volatility and seeking absolute returns, is considering an allocation to a hedge fund. Which characteristic is most typical of hedge funds compared to traditional mutual funds?

Question: A high-net-worth individual, concerned about market volatility and seeking absolute returns, is considering an allocation to a hedge fund. Which characteristic is most typical of hedge funds compared to traditional mutual funds?

Answer options: ✅ Use of leverage, short selling, and complex strategies.

• High liquidity and regulatory oversight by provincial securities commissions under NI 81-102.
• Objective to consistently outperform a broad market index with low risk.
• Transparent fee structures and daily valuation of assets.

Correct answer: Use of leverage, short selling, and complex strategies.

Explanation: Hedge funds commonly employ sophisticated strategies including leverage and short selling to generate absolute returns, which differentiates them from many traditional mutual funds that typically aim to outperform a benchmark and face stricter regulations on these practices.