Hedge Fund
There is no formal definition in securities law for hedge fund. In broad terms, a hedge fund is an investment fund that endeavors to deliver absolute returns in all market conditions, with lower volatility and low correlation to bond and equity markets. Hedge funds encompass a wide range of strategies, all intended to reduce risk while focusing on absolute rather than relative returns. Hedge funds employ an extensive suite of sophisticated techniques not available to conventional funds, including short selling, derivatives and leverage.

Hedger
An individual or company owning or planning to own a cash commodity corn, soybeans, wheat, U.S. Treasury bonds, notes, bills, etc. and concerned that the cost of the commodity may change before either buying or selling it in the cash market. A hedger achieves protection against changing cash prices by purchasing (selling) futures contracts of the same or similar commodity and later offsetting that position by selling (purchasing) futures contracts of the same quantity and type as the initial transaction.

Hedging
The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures market to protect their businesses from adverse price changes. See Selling (Short) Hedge and Purchasing (Long) Hedge.

High Water Mark
The high point of value that an investment fund has reached. This term is often used in the context of fund manager's performance fee. Because the income of an investment manager is performance based, a high water mark means if the manager loses money over one time period they have to get back to the high water mark before getting a performance fee on new gains. For example, you invest $100,000 in a fund and your investment falls to $90,000 after 1 year. The manager would not be entitled to a performance fee until after surpassing the high water mark or highest point of value of the investment - which in this case is $100,000.

High Yield
High yield investing involves applying a buy/hold, or a trading strategy to high yield securities. Managers may buy the high yield debt of a company that they think will get a credit upgrade or that might be in a position to redeem the outstanding high coupon issue. Other areas of opportunity include buying the discounted bonds of companies that are potential take over targets. Some managers combine these strategies with levered pools of bank debt. Portfolio securities are generally sold when they reach upside or downside price targets, or if the issuer of the securities, or industry fundamentals change materially.

Until recently high yield was primarily a US focused strategy. However, today it can be global. Some managers include emerging market bonds, others limit themselves to investment grade countries only.

Hog/Corn Ratio
The relationship of feeding costs to the dollar value of hogs. It is measured by dividing the price of hogs ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to pork prices, fewer units of corn equal the dollar value of 100 pounds of pork. Conversely, when corn prices are low in relation to pork prices, more units of corn are required to equal the value of 100 pounds of pork. See Feed Ratio.

Horizontal Spread
The purchase of either a call or put option and the simultaneous sale of the same type of option with typically the same strike price but with a different expiration month. Also referred to as a calendar spread.

Hurdle Rate
A minimum return requirement before incentive fees apply. It is often the current interest rate on Treasury bills. In private equity, the minimum return paid to the Limited Partner before the General Partner receives any share of the profits.