Actually the investment that is being touted as responsible investment is the work of socially beneficial institution like pension funds, and some charitable foundations. Normally the institutional investors do not enter the socially responsible investment scenario. Of late however the new approaches to fund investment by the institutions have bordered on social concerns. The issues of institutional investment are more complicated and diverse than the retail funds. (Sparkes, 2002, p. 117)
There are many other investment opportunities available to the retail investor without incurring the risk but at the same time gaining efficiency in value without hedging. The retail investors thus are better off in those segments and hedging must not be opened to them. There are ample other investment portfolios that offer similar returns without so much risk. The cost of operation, entry cost and exit costs are also less.
Retail Investors & Markets
There are many types of securities that are traded in the market and can be used for hedging. One is the fixed income securities, although these are relatively risk free, and provide a predictable future return. These are not exactly hedging funds. Most retail investors prefer this to the greater risk bearing mutual fund or hedge funds. The values of these securities however can rise or fall and the value being subject to change, there is nevertheless a small element of risk. This thus is safe in the short-term investment considerations. Other non-risky investments are the money market deposit accounts in depository institutions because these are assured by the 'Federal Deposit Insurance Corporation.' Thus deposits with any commercial bank, Mutual savings bank will be covered. (Nowak, 1993, p. 108)
The disadvantage is that the interest for the investment is fixed. However the investor is assured that the interest and the principal is safe. On the other hand the stock and bond markets are very volatile and very risky. This applies to the commodity and the FOREX market too. Hedging is a feature of these markets. In the investments in the safe side, the investor need to know only elementary things like the rate of return and the interest rates and the offers by the banking institution in which the retail investor invests. On the other hand the investor in the hedge funds has to be learned in many market operations and require deep knowledge and training in the process of forecast, and what is called fundamental analysis. (Nowak, 1993, p. 108)
Thus the investors have to be very knowledgeable about the positions of hedge funds at all times in the financial markets and the investor ought to be through with the positions that affect all the financial prices. And knowing positions of hedge funds, as well as those of other market participants, is necessary for the investors. But there is a scarcity of actual data on market positions and it requires a lot of knowledge to understand the nuances of the hedge funds' stay in various markets. This some researchers have argued can be seen from some index like the aggregate returns and the net asset values of individual hedge funds. (Brouwer, 2001, p. 15) One of the most common hedging instruments for the retail investor was the mutual funds which were passively managed and low-cost market index funds. It is stated that as an instrument the mutual fund has taken a blow with the depression making most investors go abroad to other markets. (Bogle, 1999, p. 107) Thus the stability factor must also be considered. It is thus shown that hedging has the highest risk in the investment operations and the retail investor will be open to these.
The Arguments
The hedger stands to gain if the assumption made was correct...
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