TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated outflow of US$3.7bn, or 0.2% of assets, in June 2010, following an inflow of US$4.9bn in May and an outflow of US$2.5bn in April. The industry posted negative returns of 3.2% in May and 1.1% 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,” said 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% of 99 respondents are bullish on the S&P 500, up sharply from 19% in June. Only 22% are bullish on the US dollar, down from 36% 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,” said 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 US$2.1bn, the largest outflow of any strategy, while fixed income funds received US$1.4bn, the largest inflow. Funds of hedge funds posted an outflow of US$4.6bn, bringing year-to-date redemptions to US$15.2bn, while commodity trading advisers posted a fourth straight monthly inflow.
“Fixed income funds are up 6.4% this year, far and away the best performance of any strategy, but caution is in order,” said Deluard. “Ten-year treasury yields have slipped below 3%, two-year note yields sit at 0.56%, and bond mutual funds and ETFs have taken in a staggering US$708bn in the past 16 months. It seems to us that investors are trying to squeeze blood from turnips.”
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