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Black Swan Funds

Black Swan Funds are specialized investment funds designed to protect against rare, unpredictable, and highly impactful events, often referred to as "black swan" events. These events, such as financial crises, natural disasters, or geopolitical shocks, can cause significant market disruptions and losses. Black Swan Funds typically employ strategies like tail-risk hedging, volatility trading, or options strategies that gain value during extreme market declines.

Example

A Black Swan Fund might hold deep out-of-the-money put options on major stock indices. These options would become highly valuable if a sudden market crash occurred, offsetting losses in other investments.

Key points

• Designed to protect against rare, unpredictable, and impactful events.

• Employ strategies that benefit from extreme market declines.

• Typically underperform in stable markets but provide significant protection during crises.

Quick Answers to Curious Questions

They provide protection and potentially significant profits during rare, extreme market events that can cause substantial losses in traditional investments.

They often incur losses or generate modest returns because their strategies are geared toward extreme market declines.

Investors concerned about significant market downturns or those looking to hedge against extreme risks in their portfolios.