Are all hedge funds highly aggressive?

No. This is the greatest misconception regarding hedge funds. Although some funds are aggressive, many other funds emphasize consistency of returns or protection of investors' capital. Recall that hedge funds cover a wide variety of investment strategies including fixed annuities and other conservative strategies.

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Are all Hedge Funds hedged?

No. Not all hedge funds are hedged. Many are simply long stocks, and may even use leverage. One must ascertain on a case by case basis, therefore, whether a fund hedges, how, and how much. This is absolutely crucial to understanding a fund's performance. Without this information, one cannot gauge how much risk produced its return.

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What does it mean to "hedge"?

"Hedging" roughly means managing risk. Typically, a money manager employs a particular hedging technique in order to mitigate a particular type of risk. For instance, market risk - the risk of a decline in the overall market - can be hedged against by selling a broad collection of securities short in equal proportion to one's long exposure. The same end could also be accomplished by buying put options on an index like the S&P500. Other types of risk often hedged against include interest rate, inflation, and large weightings in a sector, region, single company, or currency. Tools and techniques of hedging include: raising cash, selling short, buying or selling options, futures, commodity and/or currency futures, etc.

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