Imagine you are going on a cruise. Soon after you get on board, you realize there are no lifeboats. If you are like most people, you would not even consider staying on the ship. It's not because you expect the ship to sink, but you know that disaster is always a remote possibility, and expect appropriate precautions to be taken to protect against that possibility.

So why wouldn't you take the same precautions when investing? In years past, simply diversifying your investments among different countries was a good way to protect yourself. Today, most major markets are highly correlated, rising and falling around the same time. Furthermore, traditional investments such as mutual funds are bound by regulations to stay heavily invested in their stated asset class, regardless of market conditions. In other words, when the ship is sinking, you've got to go down with it (and hope it eventually floats back up to the surface).

So in a market beset with potential crises, what gives you the best chance at earning a decent return while at the same time offering potential protection from market shocks?

The answer can be found in absolute return investments, also known as hedge funds. Unlike their mutual fund counterparts, hedge fund managers are not restricted in what strategies they can use and which investments they can hold. For example, a manager of a Canadian equity mutual fund has no choice but to invest in Canadian equities, even if Canadian markets are going down. A hedge fund manager, on the other hand, has the flexibility to move money out of losing assets and into something that will continue to add value to the fund.

Of course, it is important to remember that no hedge fund will protect your portfolio in all market conditions. Some are quite conservative and stable, whereas other are very risky and speculative. It is important that you do your homework before investing in hedge funds.

No one knows whether the markets in the months and years ahead will bring stormy weather or smooth sailing. So why not protect yourself from some of this uncertainty by making sure your portfolio has a lifeboat? If you would like to learn more about hedge funds, give us a call or send us an e-mail. We'd be happy to discuss it with you.

Yours truly,

Tactical Asset Management, Inc.
phone: (306) 757-2121
fax: (306) 347-3655
e-mail: inquiry@tacticalassetmgmt.com
website: www.tacticalassetmgmt.com