With every passing day, the demand for exotic funds is increasing in the market. No doubt, exotic funds have upgraded the level of the financial sector as well as the way people used to invest their money. There is something really exotic about these funds that people keep fancying and keeping their eye on every single change happening in this sector. Today we would be talking about different kind of exotic funds and their role in your day-to-day financial life.
Exotic funds are not for everyone. If you’re looking for funds to invest in stock and bonds with a good long-term approach, then it is suitable for you. And know, bonds are expensive just as stocks.
Exotic mutual funds are untraditional, experimental and quite strange. Exotic funds focus on narrow parts of the markets. So investors generally choose exotic funds for a broad and diversified portfolio. Following are few of the major types of exotic funds that have driven a lot of common people crazy.
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1. Art Funds
These are privately offered funds which relate to the generation of returns through acquiring and disposition of artwork. They are managed by either advisory firms or art investment management for which they receive a management fee and a portion of returns delivered by the fund.
The features of art investment funds are many and vary from fund to fund. All art funds differ in their size, duration, investment strategies and focus as well as portfolio restrictions.
Art markets are proved to be resilient over time and even if all of the grades of investment are combined, art held for a period of ten years will manage to achieve an average compound rate of around 4%.
Various funds have performed better than that and the global art market is experiencing a boom, still, with sales reaching a record £37 billion in 2014.
2. Weather Funds
Weather funds are in a habit to perform moderately well during good and worst economic phases. All weather funds usually have flexible investment planning and strategies that allow them to utilize alternative techniques and diversify across assets such as sector rotation, in order to manage for varying market changes.
Funds without allocations tend to perform even better in all types of market conditions because of their flexibility to adjust. Global risk funds are a unique and special category as they adjust portfolio allocations by asset class.
It is flexible enough to make asset class adjustments and this is the most notable advantage that allows funds to grab more and more investment in all types of market conditions.
3. Hedge funds
Hedge funds tend to use complicated investment strategies than most mutual funds. The Morningstar 1000 Hedge Fund Index rose 17% this year.
To invest in a hedge fund, you need a net worth of 1 million dollar or annual income of $200,000 because they aren’t accessible to small investors. Hedge fund managers charge good fees as much as 2
Hedge fund legend uses a style called global macro style. It entails betting on certain macroeconomic trend such as a declining currency.
4. Currency Funds
There are many ways to invest in foreign currencies.
The safest is to invest in a diversified foreign stock or fund that doesn’t hedge its currency risk. Here standard mutual fund can be used as funds are unhedged, when the currencies lying in the fund increases against the dollar a positive effect on return on the same amount is experienced by the investors.
The return of these funds purely depends upon dollar’s move against the respective currencies and interest rate. If the currency rise, the funds will have positive returns and if the currency’s fall, you will face money loss.
5. Emerging markets
Emerging market bonds are the top performers until the year. The easiest way to participate in emerging market bonds is through mutual funds and ETFs.
Advantages of Emerging Market is that they trade throughout the day contrary to one time a day for open-end mutual funds because they are based on market indexes and they don’t trade actively. They usually have cheaper fees than mutual funds.
Novice investors may do good to start with a fund that invests in many countries to avoid putting all their eggs in a single basket.
An issue for foreign stock or bonds is currency hedging. If the fund hedges its currency risk, the returns will be similar whether the dollar rises or falls and when the fund doesn’t hedge, the return will benefit when the dollar falls and suffer when it rises.
6. Wine Funds
Wine Investment Fund is a scheme of unregulated collected investments.
Wine Funds doesn’t display any kind of cash flow which means that the value of a bottle of wine, contrary to stocks or bonds, cannot know very or change by a traditional financial approach. The confrontation between supply and demand explains the evolution of prices. The profit or loss in wine funds depends on the characteristics of the wine market and on the capacity of the fund manager.
7. Coal funds
Coal funds invest in stocks, in companies which gives a part of their revenues from the production and manufacturing of coals. Because countries are becoming eco-friendly, alternative energy sources will be needed such as coal. The demand for coal is already high in countries like India and China, so coal ETF’s can be used to gain foreign exposure or to hedge some foreign risk.
Besides the merits that come with ETFs, coal ETF can be helpful in hedging risk and they can also decrease systematic risks too