Mutual funds are collective vehicles managed by experts that allow investors to pool their money to achieve a common goal. Depending on the nature of the assets in which they invest, these funds can have different levels of risk, return and volatility. For example, a fund that invests in emerging country equities might have a higher expected return, but also higher volatility, than one focused on time deposits.

There are several types of mutual funds, each with specific features and benefits. Here are three of the most common, from the most basic to the most sophisticated: ETFs, Mutual Funds and Hedge Funds..

• ETFs (Exchange Traded Funds)

The ETFs are passively managed investment funds, which means that their objective is to replicate the performance of a benchmark index, without attempting to generate outperformance. Thanks to this strategy, their management fees are usually low. In addition, their price adjusts throughout the day, allowing them to buy or sell shares at any time.

• Mutual Funds

Unlike ETFs, mutual funds mutual funds are actively managed, i.e., a specialized team seeks to generate a return superior to that of a comparative index or benchmark. benchmark. However, because of active management, these funds tend to have higher fees and require a minimum investment. Investors can deposit or withdraw money, but the value of the fee is calculated at the end of the day, once the fee value is known.

• Hedge Funds

The hedge funds, o Hedge Fundsare the most sophisticated. They seek to generate positive returns regardless of market behavior. They use complex strategies, such as short sales, leverage (use of debt to increase exposure) and derivatives, among others. Due to their level of specialization, they are only available to qualified investors and usually require a high minimum amount. They also charge higher commissions, which may include an additional fee if certain returns are exceeded.

In summary, each type of fund has its own advantages and risks. Depending on your investment profile, time horizon and liquidity needs, you can combine these funds to create a diversified portfolio that fits your objectives. The key is to understand how each fund fits into your overall strategy and reap the benefits of a well-balanced portfolio.

DISCLAIMER.

Ciro Giraldez

Portfolio Manager Fixed Income Fynsa AGF