The hedge fund industry pulled in US$17.5bn (1.0% of assets) in April 2011, the fourth straight inflow, report TrimTabs Investment Research and Barclay Hedge. Industry assets increased to US$1.8 trillion, the highest level since October 2008.
“Flows are doubtless following performance,” said Sol Waksman, founder and president of Barclay Hedge. “The Barclay Hedge Fund Index posted a positive return in each of the eight months ended April, and investors of all stripes are prone to chase a winning streak.”
Multi-strategy funds hauled in US$5.3bn (2.5% of assets) in April, the heaviest inflow of all hedge fund strategies. Macro funds received US$3.0bn (2.6% of assets), the fourth straight inflow, even though these funds have posted a relatively poor return in 2011. Fixed income funds took in US$1.3bn (0.7% of assets), the 11th inflow in 12 months.
“The appetite for bonds appears to be insatiable,” said Vincent Deluard, executive vice president (EVP) at TrimTabs. “Hedge fund investors, ETF [exchange-traded fund] investors, mutual fund investors, and speculative traders are piling into the space. This enthusiasm explains why the yield on the 10-year Treasury has plunged to a six-month low.”
The TrimTabs/Barclay Hedge survey of hedge fund managers for May 2011 reveals that managers have turned neutral on US equities. About 30% of managers are bullish on the S&P 500, up from 23% in April, while 29% are bearish, down from 34%. Meanwhile, managers have turned marginally bullish on the US dollar, and 34% plain to increase leverage in the near term.
“This desire to lever up squares with other data, including a level of margin debt that stands at the highest level since February 2008, that highlights a healthier appetite for risk,” said Deluard. “Also, hedge fund managers have been decreasing exposure to defensive sectors such as health care and allocating more cash to cyclical sectors. Basic materials accounted for a huge 18.9% of hedge fund equity assets at the close of the first quarter, which is twice as large as its share of the Russell 3000.”
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