Hedge funds took in an estimated USD6.8 billion in February, reversing a trend that saw more than USD21.5 billion flow out of these funds in January 2012 and December 2011, the largest outflows since July 2009, according to BarclayHedge and TrimTabs.

Hedge fund managers underperformed the S&P 500 by 180 bps in February, returning 2.3% vs. 4.1% for the S&P 500, according to the monthly BarclayHedge/TrimTabs hedge fund flow report. Managers also underperformed the S&P 500 in the first two months of 2012, 5.5% vs. 8.6%.

"Despite February’s inflows, below average performance and net outflows have kept a lid on hedge fund assets near an estimated USD1.72 trillion for the past five months,” says Sol Waksman (pictured), founder and president of BarclayHedge.

Funds of hedge funds took in USD5.7 billion in February, reversing five months of outflows and returning 1.4%.

“Funds of funds underperformed hedge funds by 260 bps over the past year,” says Waksman.

“Recent flows into hedge fund strategies seem to be indicating investors think the latest stock market rally has run its course,” says Charles Biderman, founder and CEO of TrimTabs. Equity Long Bias hedge funds saw an outflow of USD6.8 billion in February, the most since they shed USD12.4 billion in December 2008.  Meanwhile, Equity Long-Short strategies saw an inflow of USD1.5 billion in February, the most since they took in USD1.7 billion in April 2011. 

Japan-based hedge funds have seen surging popularity. “These funds generated an inflow of 16.2% assets in the past year, even though they lost 7.8% in the same period,” says Leon Mirochnik, an analyst at TrimTabs. “It seems these investors did not enjoy the added benefit of currency appreciation in the past 12 months, as the yen gained only 0.7% versus the dollar in that time period.”

Meanwhile, the March 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers finds that 63% of managers think the Fed will raise rates before 2014, while 37% think the Fed will not budge from its stance.  About 67% of managers do not expect the Fed to launch a third round of quantitative easing in 2012.

The survey also finds a strong note of caution on the US stock market among hedge fund managers.  Neutral sentiment on the S&P 500 for April climbed more than 11 percentage points to 40.8% in March from 29.5% in February, according to the survey. Bullish sentiment dove to 30.6% in March from 40.0% in February, and Bearish sentiment dipped to 28.6% in March from 30.5% in February.

The survey of 98 hedge fund managers, conducted in the third week of March, also found that bearish sentiment on the 10-year Treasury had more than doubled, spiking to 48.4% in March from 20.8% in February.