Niche Hedge Funds Make Exotic (and Risky) Investments

From Reinsurance to Electricity Arbitrage, Hedge Funds Seek Out Non-Traditional Investments

In an investment universe where low returns are seemingly everywhere, some hedge funds are making bets on exotic alternatives according to CNBC.com.  Rather than invest in traditional safe havens like US Treasuries or German Bunds, some hedge funds are making obscure bets such as electricity arbitrage, or Chinese companies that are the subjects of fraud investigations, as well as reinsurance and catastrophe bonds.

While higher returns are likely the main rationale behind these exotic hedge fund investments, many of them are also uncorrelated to bonds and equities and can provide some risky diversification.

Hedge Funds Scaling Back Risk

With the US economy and the major stock indexes taking a step back, hedge funds are putting their money into more defensive sectors such as utilities and other high dividend stocks.

Some hedge fund manages say that a lot of risk is being taken off the table.

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