Cheap access to hedge funds sounds too good to be true. More often than not, you will have to pay a premium to gain exposure to this sector. But there are plenty of investment trusts that invest in hedge funds and are sitting on big discounts to their net asset value.
The term 'hedge fund' has a very broad meaning but, generally, hedge funds aspire to generate absolute returns irrespective of the market environment. However, despite some enjoying a roaring success in recent years, 'aspiring' is as much as others have achieved, while a number, such as Amaranth in 2006 and Peloton Master Fund in 2008, have spectacularly blown up.
In 2008 when the credit crisis really kicked off, the average hedge fund lost around 19 per cent for investors - making the phrase 'absolute returns' seem more like an absolute joke.