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Hedge funds post inflow of USD16bn in October

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The hedge fund industry posted an estimated inflow of USD16.0bn (1.0 per cent of assets) in October 2010, the fourth straight inflow as well as the heaviest since November 2009, according to data from TrimTabs Investment Research and BarclayHedge.



“Flows are doubtless following performance,” says Sol Waksman, founder and president of BarclayHedge. “Hedge funds returned 1.95 per cent in October and 7.10 per cent in the four months following the May-June skid. Also, our preliminary data shows that hedge funds are outperforming the S&P 500 by about 21 basis points through November.”

Distressed securities funds hauled in USD3.8bn (3.3 per cent of assets) in October, the heaviest inflow of any hedge fund strategy, while emerging markets funds posted an inflow of USD2.2bn (1.0 per cent of assets). 

Meanwhile, fixed income funds received only USD506m (0.3 per cent of assets), the lightest inflow since April.

“Hedge fund investors are exhibiting a healthier appetite for risk,” says Waksman. “They are finally venturing into areas like distressed securities after embracing conservative strategies for most of the year.”

Commodity trading advisers received USD7.9bn (2.8 per cent of assets) in October, the eighth straight inflow, while funds of hedge funds took in USD3.3bn (0.6 per cent of assets), the fourth straight inflow. 

Meanwhile, hedge fund managers are capitalising on kind conditions heading into 2011.

“Borrowing money to buy assets is virtually costless, investors handed hedge fund managers USD32.1bn in the past four months, and margin debt is soaring,” says Vincent Deluard, executive vice president of research at TrimTabs. “At the same time, the rolling 12-month beta of hedge fund returns sits below the long-term average, and that of equity long-short funds is dipping below zero. Managers should be especially eager to book fat profits through year-end, but they remain very reluctant to make directional bets on equities.”

Managers are also extremely bearish on the ten-year Treasury note, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers. Bearish sentiment soared to 49 per cent in November from 28 per cent in October, while bullish sentiment sank to 13 per cent, the lowest level since the inception of the survey in May.

“Retail investors and pension funds have been pouring money into high-flying fixed income for nearly two years,” adds Deluard. “But now hedge fund as well as retail bond inflows have ground to a halt, and mom and pop are ditching munis and junk. The more the infatuation with bond funds fades the more we fear the fallout will prove particularly ugly.”

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