Financial Advisor Carlsbad

The White Paper You MUST Read!

Investing in Hedge Funds, PART 2

financial-advisor-californiaInvesting in hedge funds is not for all Carlsbad residents. This is not simply a matter of financial advice, but a legal requirement, as spelled out in the Securities Act of 1933. This Act requires that hedge funds may only accept accredited investors, or those with at least $1 million in net worth or $200,000 annual income.
Read PART 1 of this series first, or continue…
Financial Advice for Carlsbad Residents: Due diligence

The selection of individual hedge fund managers is just as important as hedge fund style selection. Due to the considerable size of investment required, a significant amount of due diligence must be undertaken before making the investment decision. Some important factors to consider in the LPL financial advisor selection process include:

  • Market opportunity,
  • Investment process,
  • Organization,
  • People,
  • Terms and structure, and
  • Document review.

Market opportunity is a study of the likelihood that a particular fund style will be successful given current market conditions. The investment process refers to identifying ways that your Carlsbad manager can add value above and beyond market returns. Organization and people includes a review of how the fund operates, who operates it, what experience they have, and their performance history. Terms and structure is an analysis of the fees charged and ensuring that your LPL financial advisor and investor interests are aligned. Finally, a thorough review of the legal documents must be conducted to ensure that what is represented in marketing materials and presentations, is what the fund will do.

Financial Advice for Carlsbad Residents: Role in Portfolios

Investments in hedge funds can add another level of diversification within the portfolio, thus adding return and potentially reducing risk. For a particular portfolio, the benefit derived from adding a hedge fund in different styles can be quite noticeable.

Two investments that are perfectly correlated have a correlation coefficient of 1, with no correlation this measure is 0, and perfect negative correlation is -1. Adding an investment to a portfolio that is perfectly correlated with other investments adds no diversification benefits, but low or negative correlation can be very beneficial in diversification efforts.

The accompanying table shows how the returns of different hedge fund styles correlate with each other and with stocks, as measured by the S&P 500. It reveals that adding investments in hedge funds, no matter the style, are not highly correlated with stocks and therefore will increase the diversification within the portfolio. The other important factor to point out is the stark contrast in correlations across different fund strategies. This is why style selection is critical in portfolio planning.

To Continue Reading About Investing in Hedge Funds:
Wealth Management in Carlsbad: Investing in Hedge Funds, PART 3

Let’s Get Connected!
If you want to get started on your journey today or would like individualized investment/financial advice from LPL financial advisor, John Lohrenz, please contact JKL Wealth Management at:

Phone: (858) 535-1705
Fax: (858) 535-1701
Email: john.lohrenz@lpl.com

Alternatively, fill out the Contact Form and we’ll get back to you shortly.

Physical Address
731 S. Hwy 101, Suite 2K, Solana Beach CA 92075

Securities and Advisory services offered through LPL Financial, a registered investment Advisor. Member FINRA/SIPC.


About Carlsbad, North San Diego County

Carlsbad – otherwise nicknamed by the locals as “The Village by the Sea” – is located along the Pacific Ocean in North San Diego County, in the U.S. The city is perfectly positioned to be only 87 miles from Los Angeles and 35 miles away from San Diego. Carlsbad covers 39 111 squares miles, with only 3.55 square miles of land cover consisting of water. The Luiseño people were the first inhabitants of the area and lived in native villages. These villages were discovered by the first Europeans traveling on the Portolà expedition in 1769. Carlsbad’s beaches, very warm summers and five star resorts and hotels, bring in numerous tourists all through the year. The Carlsbad population was recorded at 109,318 residents in 2012, according to U.S. Census Bureau.