Opportunity

Why hedged strategies

Hedged strategies represent a diverse group of strategies that may serve multiple roles. Different strategy types play different roles within a portfolio. This has historically made hedged strategies a popular diversification and outcome investing tool for institutional investors.

The size of the market

$4.7 trillion

Global hedge funds and liquid alternatives asset under management

Source: Franklin Templeton and HFR Global Hedge Fund Industry Report. As of June 30, 2025.

Varying degrees of utilization across institutions

Utilization of different alternative investments by institutional investor type

Weighted average 2024

Chart

Bar chart with 4 data series.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying “% Allocated. Data ranges from 0.1 to 15.
End of interactive chart.

Source: Preqin, as of December 31, 2024

Hedged strategy investing: different strategies for different outcomes

Equity hedge

Long-short strategies are long the companies they expect to rise and short those they expect to fall; they attempt to make money by employing either fundamental or quantitative analysis.

Event driven

Activist investors are often taking large positions and board seats to unlock value in companies. Activism can result in restructuring or selling off unproductive assets.Merger-arbitrage seeks to take advantage of merger activity typically taking positions in potential targets before the market has priced in a transaction.

3D Graphs

Why invest in hedged strategies: potential benefits

Performance variation between hedge fund strategies and markets over time

January 1, 2013 – December 31, 2024

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Equity Hedge
14.28%
Global Macro
5.58%
Relative Value
-0.29%
Event-Driven
10.57%
Equity Hedge
13.29%
Relative Value
-0.43%
Equity Hedge
13.71%
Equity Hedge
17.89%
Event-Driven
12.41%
Global Macro
8.98%
Equity Hedge
11.37%
Equity Hedge
11.97%
Event-Driven
12.51%
Relative Value
4.02%
Equity Hedge
-0.97%
Relative Value
7.67%
Hedged Strategy Composite
8.59%
Event-Driven
-2.13%
Hedged Strategy Composite
10.45%
Hedged Strategy Composite
11.83%
Equity Hedge
11.67%
Relative Value
-0.68%
Event-Driven
10.42%
Hedged Strategy Composite
9.83%
Hedged Strategy Composite
9.13%
Hedged Strategy Composite
2.98%
Hedged Strategy Composite
-1.12%
Equity Hedge
5.47%
Event-Driven
7.58%
Global Macro
-4.08%
Event-Driven
7.49%
Event-Driven
9.26%
Hedged Strategy Composite
10.16%
Hedged Strategy Composite
-4.14%
Hedged Strategy Composite
8.12%
Event-Driven
9.27%
Relative Value
7.07%
Equity Hedge
1.81%
Global Macro
-1.26%
Hedged Strategy Composite
5.44%
Relative Value
5.14%
Hedged Strategy Composite
-4.75%
Relative Value
7.42%
Global Macro
5.38%
Global Macro
7.72%
Event-Driven
-4.83%
Relative Value
6.95%
Relative Value
8.72%
Global Macro
-0.44%
Event-Driven
1.08%
Event-Driven
-3.55%
Global Macro
1.03%
Global Macro
2.20%
Equity Hedge
-7.14%
Global Macro
6.50%
Relative Value
3.38%
Relative Value
7.59%
Equity Hedge
-10.13%
Global Macro
-0.34%
Global Macro
5.65%

For illustration purposes only, highlighting the performance variation between hedge fund strategies and markets over time. Source: Franklin Templeton Capital Markets Insights Group. HFRI Fund Weighted Composite, HFRI Equity Hedge, HFRI Event Driven, HFRI Macro, HFRI Relative Value = HFR Indices, MSCI, Bloomberg Barclays

Hedged strategies: find the right mix of tools for the job

The term hedged strategies describe a rank of investing approaches with various trading techniques across different asset classes. Given this range it is very important to understand characteristics of different strategies. This understanding will help allocate investors to strategies that are more likely to contribute to the desired outcome.

Abstract graphic

Long short equity

Seeks to produce returns from investments in the global equity markets by making long and short investments.

Key characteristics:

  • Most often directional
  • Typically invests in equity positions
  • Focuses on security selection
  • Generally does well in flat/rising equity markets driven by corporate fundamentals
Abstract graphic

Relative value

Wide range of investment techniques that seek to profit from pricing inefficiencies

Key characteristics:

  • Non-directional
  • Typically fixed income arbitrage and long short credit positions
  • Attempts to capture spread between securities values
  • Generally does well in uncertain markets and flat/rising bond markets
Abstract graphic

Event driven

Generally invests in securities of companies undergoing corporate events.

Key characteristics:

  • Tends to be non-directional.
  • Typically invests in companies undergoing corporate events.
  • Security's price usually driven by event rather than broad market.
  • Generally does well when the economy is performing well and corporate activity is high.
Abstract graphic

Global macro

Focuses on top-down, macroeconomic opportunities across numerous markets and investments

Key characteristics:

  • Most often directional.
  • Typically invests across broad markets: equity, credit, interest rate, FX and commodity.
  • Focuses on macro trends.
  • Generally does well in periods of economic stress and volatile markets where trends exist.

Investing across hedged strategies, a flexible and diversified approach

K2 Alternative Strategies Fund seeks capital appreciation with lower volatility relative to the broad equity markets by allocating across multiple alternative strategies.

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