What type of fund involves higher gearing and more active management?

What type of fund involves higher gearing and more active management?

• A. Core funds
• B. Value add funds
• C. Core plus funds
• D. Opportunistic funds

Answer: (B)

The correct choice is value add funds, which are characterized by their approach to investment that typically involves a higher level of gearing, meaning they use debt to finance a greater percentage of their investments. This leveraging can amplify returns if the investments perform well. Additionally, value add funds engage in more active management compared to other fund types. This active management involves making strategic decisions designed to improve the value of the investment portfolio, such as renovations in real estate or operational improvements in companies. In contrast, core funds usually emphasize stability and minimal leverage, focusing on lower-risk investments with steady returns. Core plus funds typically involve a moderate level of risk and leverage, but less active management compared to value add funds. Opportunistic funds may also involve higher risks and leverage but are often less focused on long-term value creation and more on capitalizing on specific opportunities in the market, often with a speculative approach.

The correct choice is value add funds, which are characterized by their approach to investment that typically involves a higher level of gearing, meaning they use debt to finance a greater percentage of their investments. This leveraging can amplify returns if the investments perform well.

Additionally, value add funds engage in more active management compared to other fund types. This active management involves making strategic decisions designed to improve the value of the investment portfolio, such as renovations in real estate or operational improvements in companies.

In contrast, core funds usually emphasize stability and minimal leverage, focusing on lower-risk investments with steady returns. Core plus funds typically involve a moderate level of risk and leverage, but less active management compared to value add funds. Opportunistic funds may also involve higher risks and leverage but are often less focused on long-term value creation and more on capitalizing on specific opportunities in the market, often with a speculative approach.