Mutual Funds

An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. Benefits of mutual funds include diversification and professional money management. Mutual funds offer choice, liquidity, and convenience, but charge fees and often require a minimum investment. A closed-end fund is often incorrectly referred to as a mutual fund, but is actually an investment trust.

Exchange Traded Funds

If you own low tax basis securities, Allegiant Financial Exchange Traded Funds allow you to exchange them for shares in a Limited Partnership or Limited Liability Company without causing a taxable event. Outside of Exchange Traded Funds, there are very few options available to help you gain greater diversification without selling your securities or incurring a capital gains tax.

Benefits

• Exchange Traded Funds allow you to achieve greater diversity and a significant tax advantage while maintaining ownership of your securities.
• If you have a time horizon of seven years or more, you will realize the greatest benefits of an exchange traded fund. After a seven-year period, you may be able to receive a diversified basket of securities as a tax-free redemption.
• Some funds have an estate-planning feature that may prompt you to remain in the fund longer.

Features

1. The minimum investment is usually $1 million.
2. Clients must be qualified purchasers or accredited investors, thus they must have a net worth of at least $5 million (exclusive of homes, furnishings, and automobiles), and income of $200,000 per year for each of the past two years and the upcoming year in order to invest. Most Exchange Traded Funds have at least 50 and as many as 499 investors, and are only open to new investors for set periods of time.
3. For tax purposes, each security and its corresponding cost basis follows the contributing member until he or she exits the fund. Therefore, if a security must be sold, the capital gains liability flows back to the contributing member.
4. Exchange Traded Funds may not invest more than 80% of assets in stocks or securities. Thus, exchange traded funds typically invest at least 20% of assets in real estate through REIT operating partnerships. This protects the tax-advantaged nature of the product. Exchange Traded Funds typically leverage 20-25% of their portfolios to meet this requirement.
5. Exchange Traded Funds are extremely illiquid; investors rarely can retrieve their investment without paying substantial penalties.

Hedge Funds

There is no exact definition to the term "hedge fund", it is undefined in federal or state securities laws. There is neither an industry-wide definition nor a universal meaning for "hedge fund" according to the SEC. Since hedge funds do not register with SEC, their actual data cannot be independently followed; therefore hedge fund data is self-reported. There are over 8,500 hedge funds in the U.S. today. Hedge Fund assets are estimated to manage $1 trillion in assets. Estimates of new assets flowing into hedge funds exceed $25 billion on average for the last few years.

The term "hedge fund" is loosely defined and does not always imply a hedging technique is being used. Hedge funds today employ all different types of strategies, and the appropriate description could simply be conveyed as “any unregistered, privately-offered, managed pool of capital for wealthy, financially sophisticated investors.” Hedge funds are usually structured as partnerships, with the general partner being the portfolio manager, making the investment decisions, and the limited partners as the investors. Hedge fund managers attempt to produce targeted returns or absolute performance, regardless of the underlying trends in the financial markets. They implement a wide array of trading strategies, from equity, fixed-income, CTA portfolios, or mathematical algorithms, however they each strive to capture market inefficiencies.

Hedge funds are subject to the same market rules and regulations as any trader. The strategies they utilize are not as easily accessible, especially for other regulated entities, such as mutual funds. To achieve this "absolute return", hedge fund managers have the flexibility to incorporate different strategies and techniques that may include:

Short-selling: Sale of a security that you do not own, with the anticipation of purchasing it in the future, at a reduced cost.

Arbitrage: Simultaneous buying and selling of a financial instrument in different markets to profit from the difference between the prices

Hedging: Buying/selling a security to offset a potential loss on an investment.

Leverage: Borrowing money for investment purposes.

Hedge funds do not afford protection for the investor, which typically applies to most registered investment products. This includes the full set of protections applicable under federal and state securities laws. Simply, you will not get the same disclosure and transparency from a hedge fund than you would from a registered product, like a mutual fund.