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Hedge funds post $15.7bn inflows in March with investor favor moving toward emerging markets and fixed income

Monday, May 09, 2011
Opalesque Industry Update - The hedge fund industry posted an inflow of $15.7 billion (0.9% of assets) in March 2011, report BarclayHedge and TrimTabs Investment Research. The inflow marks the third straight as well as the seventh in eight months. Industry assets rose to $1.8 trillion, the highest level since October 2008.

“We expect recent strength to persist in light of a particularly kind landscape,” explains Sol Waksman, founder and President of BarclayHedge. “Seasonality works in favor of the industry through June, high commodity prices leave sovereign wealth funds with a lot of cash to invest, and returns have been strong. The Barclay Hedge Fund Index boasts a positive return in each of the seven months through March.”

Commodity trading advisors (CTAs) took in $6.0 billion (1.9% of assets) in March, the fourth straight inflow as well as the twelfth in 13 months, while funds of hedge funds took in $3.4 billion (0.6% of assets), the second straight inflow. Meanwhile, hedge fund investors are sticking with two long-time favorites. Emerging markets funds hauled in $3.4 billion (1.4% of assets), the eighth straight inflow, while fixed income funds took in $3.3 billion, the third straight inflow as well as the tenth in 11 months. These two strategies account for about half of all hedge fund inflows in 2011.

“The strength of flows into fixed income is remarkable,” notes Vincent Deluard, Executive Vice President of Research at TrimTabs. “Hedge funds investors and retail investors alike are keen on the space, while speculative traders and the Fed are buying Treasuries in size. Although many market participants expect interest rates to increase after QE2 closes at the end of June, prices have plenty of support at present.”

The TrimTabs/BarclayHedge Survey of Hedge Fund Managers for April reveals that 58% of managers do not expect the Fed to start tightening in 2011. Meanwhile, 23% of managers aim to lever up in the coming weeks even though they remain generally bearish on the S&P 500.

“Managers have been rather schizophrenic,” explains Deluard. “They are concerned that stock prices have climbed too far too fast, but many of them have exceeded their 2007 high-water marks and show no interest in deleveraging. Margin debt has been soaring for seven months in part because being able to borrow on the cheap to keep playing the momentum game is too great a temptation to resist.”

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