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Hedge funds post outflow of USD3.7bn in June 2010

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The hedge fund industry posted an estimated outflow of USD3.7bn, or 0.2 per cent of assets, in June 2010, following an inflow of USD4.9bn in May and an outflow of USD2.5bn in April, according to TrimTabs Investment Research and BarclayHedge. 

The industry posted negative returns of 3.2 per cent in May and 1.1 per cent in June, the first two-month losing streak since January and February 2009.
 
“Redemptions probably persisted through July, and they could pepper the remainder of the year,” says Sol Waksman, founder and president of BarclayHedge. “Even if performance hadn’t been poor in May and June, July is historically one of the worst months of the year for fund subscriptions, and seasonality will be working against inflows through December.”

The TrimTabs/BarclayHedge Survey of Hedge Fund Managers for July reveals that 34 per cent of 99 respondents are bullish on the S&P 500, up sharply from 19 per cent in June. Only 22 per cent are bullish on the US dollar, down from 36 per cent in June. 
Additionally, a quarter of hedge fund managers put the odds of a double-dip recession at greater than two in three, while inflation expectations are balanced. 

“Indecision about the economic future might explain the somewhat contradictory strength in metals and  US debt,” says Vincent Deluard, executive vice president at TrimTabs. “Many managers are ‘unusually uncertain’ about the inflation outlook, so they seem to be covering their bases with both gold – in case inflation accelerates – and long-term treasuries on deflation thinking.”
 
Hedge fund investors were risk averse in June, favouring defensive strategies over the riskiest funds. Emerging markets funds redeemed USD2.1bn, the largest outflow of any strategy, while fixed income funds received USD1.4bn, the largest inflow. 

Funds of hedge funds posted an outflow of USD4.6bn, bringing year-to-date redemptions to USD15.2bn, while commodity trading advisers posted a fourth straight monthly inflow.

“Fixed income funds are up 6.4 per cent this year, far and away the best performance of any strategy, but caution is in order,” adds Deluard. “Ten-year treasury yields have slipped below three per cent, two-year note yields sit at 0.56 per cent, and bond mutual funds and ETFs have taken in a staggering USD708bn in the past 16 months.  It seems to us that investors are trying to squeeze blood from turnips.”

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