Most investors hold a stock and bond portfolio. Regardless of sector diversification, such investors are completely exposed to equity and interest rate risk. Such portfolios cannot properly hedge inflation or economic cyclical risks, but also miss many sources of capital appreciation.
As hedge funds capitalize on trends and strategies that traditional investors cannot, the trend in the financial industry has been to seek alpha through "it" trades. The herding effect around such trades accelerates and magnifies the gains--but often funds overleverage their favorite one trick ponies and become susceptible to bust when the trade ends. Additionally, most hedge funds still operate solely within the stock market, using ETFs to gain exposure to non-equity risks. This can feel like traveling cross-country on a tricycle.
Shiau Street targets absolute returns by monetizing what is happening in the world using non-traditional, but the most appropriate instruments. Often, investors are right on their investment thesis, but they execute it incorrectly.
We capitalize on risks that cannot be easily targeted by traditional investments--as a result, we can create value for investors by adding diversification to their total investment portfolio.
At the same time, we always practice sound risk management. As we identify big picture themes and their resulting idiosyncratic trends, we do so in the context of a hedged portfolio. Although we aim to be right on our views, we protect ourselves against the outlier "black swan" events that have so commonly destroyed many hedge funds.