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From Kirsten Bischoff, Opalesque New York:

One of only a handful of bright spots in an otherwise dismal month of May was the performance of fixed income hedge funds – mortgage backed funds in particular. The top three funds in this strategy, as ranked by BarclayHedge have had strong performance through 2011 with the top ranked Midway Market Neutral Fund delivering +15.05% through April (and an additional +3.75% (est.) in May). Following close behind are the Providence MBS offshore fund +12.84% through April, and the Metacapital Mortgage Opportunities Fund, which was up 16.01% through April.

Fixed income assets Hedge fund flows are following performance (as they historically and logically do). However, fixed income funds took in only $1.3bn in April. Although this is a historic high of $193bn for the strategy and even though the April inflow marked the eleventh inflow during the past twelve months, allocations still trail behind popular strategies that have not performed as well this year.

Multi-Strategy funds hauled in $5.3 billion (2.5% of assets) Macro funds received $3.0 billion (2.6% of assets) Note: Inflows into macro funds marked the fourth straight inflow, even though these funds have posted relatively poor returns in 2011.

However, a look at the top three BarclayHedge funds shows that asset growth has been strongest in top performaers. Metacapital, founded by former Lehman executives, is racing towards the all-important $1bn......................

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