Thursday, August 25, 2011

HEDGE FUNDS SOLD STOCKS QUICKLY DURING FINANCIAL CRISIS

– LEAVING MUTUAL FUND INVESTORS TO SUFFER LARGER LOSSES

A new study of stock trading during the financial crisis of 2007 to 2009 found that hedge funds sold their stocks much more aggressively than mutual funds at the first signs of poor performance.

These selloffs occurred in response to falling stock values, the study found. Hedge fund investors withdrew almost three times as much of the money they invested as compared to mutual fund investors.

As a result, the total returns of mutual funds were much worse during the crisis than were those of hedge funds.

That means ordinary investors – who are more likely to own mutual funds – were hit hardest by the drop in stock prices, while hedge fund investors were able to limit their losses.

“Hedge fund investors rushed to the exits when stock prices started falling. As a consequence, hedge funds heavily sold their stocks. That left mutual fund clients to bear the full brunt of the falling market,” said Itzhak Ben-David, co-author of the study and assistant professor of finance at Ohio State University’s Fisher College of Business.

The fact that institutional investors are heavily involved in hedge funds also played a role. Institutional investors are managing other people’s money – it is not their own. That means they may be extra careful in their investments. They don’t necessarily get rewarded if their investments make more money than expected, but they could be fired if they lose money.

Ben-David conducted the study with Francesco Franzoni of the Swiss Finance Institute and University of Lugano and Rabih Moussawi of The Wharton School at the University of Pennsylvania.

The findings, which are included in a forthcoming paper in the journal The Review of Financial Studies, were a surprise to the researchers.

“When we think of hedge fund investors, most experts see them as the people who rush in whenever there is a stock crash or economic crisis to find a way to make money. They are seen as sophisticated investors who find a way to exploit a bad situation for their own benefit,” Ben-David said.

“But we found that they did the exact opposite during this crisis. They got out of the stock market quickly -- and that certainly didn’t help to stabilize the market. It was something we did not expect to find. At least we did not expect the phenomenon to be so pronounced!”

Hedge funds are private investment vehicles meant for wealthy investors who seek higher than average returns through sophisticated and often aggressive tactics. Many hedge fund investors are institutions, such as insurance companies, pension funds, and university endowments.

This study relied on a new data set that originates from matching the institutional ownership of U.S. stocks from Securities and Exchange Commission filings to a proprietary list of hedge funds available to the researchers. These data are then matched to proprietary data to draw information on hedge fund characteristics, performance and ownership structure. In addition, the researchers used other databases that provided information on mutual funds.

They especially focused on the period from the third quarter of 2007, when the financial crisis began, through the first quarter of 2009.

The results showed that hedge funds sold stock quickly at the first sign of losses. During the last two quarters of 2007, hedge funds reduced their stock holdings about 10 percent. Then, during the last two quarters of 2008, hedge funds sold about 30 percent of their portfolios.

Meanwhile, mutual funds’ sales of stock were about 10 times less during the crisis than were those of hedge funds, according to the study.

The quick exit from the stock market helped hedge fund investors to limit their losses when compared to mutual fund clients, Ben-David said. The quarterly returns for hedge funds were down only about 1.82 percent during the time of the study, compared to 7.22 percent for mutual funds.

Why did hedge fund managers sell so quickly during the crisis?

Ben-David said one reason was that hedge funds typically borrow money to make their purchases, and their lenders asked for their money back as stock prices started falling.

The other reason is that hedge fund investors just pulled their money out of the funds. This behavior was exacerbated by some of the practices and regulations of individual hedge funds. Some funds limit the amount of money investors can take out of the fund at any one time, or after a certain date. These rules are designed to allow the hedge funds to complete long-term, often risky, transactions.

“These restrictions give investors an incentive to run more quickly for the exit if they are losing money. We found that hedge funds that had these restrictions saw more investors pull their money out,” Ben-David said.

“Investors in these types of funds are very jumpy. For every bit of bad news, they start to think about getting their money out while they still can.”

Overall, the results suggest that, at least during this crisis, hedge funds operated much differently than expected.

“Hedge funds are often seen as providing some social benefits because they buy stocks when other people are avoiding the market. But we didn’t see that during this crisis,” Ben-David said.


Wednesday, August 24, 2011

HFN Strategy Focus Report: Event Driven/Special Situations


HFN has published a new report on event driven and special situations hedge funds. The HFN active and inactive databases contain nearly 400 unique fund products with a primary investment strategy focused on the strategies.

The HFN Event Driven Index was -1.09% in June and +1.42% YTD 2011 and HFN estimates total hedge fund assets invested in event driven and special situations (ED/SS) strategies were $515.41 billion at the end of Q2 2011.

Despite an influx of assets in 2010 and early 2011, the recent trend is negative. In Q2, performance reduced AUM $6.3 billion and investors redeemed a net $4.2 billion. Net redemptions appear to have persisted into July. The full report breaks down ED/SS classifications to elucidate performance differentials.

Morningstar Reports Hedge Fund Performance for July, Asset Flows Through June

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for July 2011 as well as asset flows through June. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar hedge fund database, rose 1.1% in July, outpacing the SandP 500’s 2.0% decline for the month.

“Global equity markets struggled in July as the United States approached the debt ceiling deadline and as concerns regarding the European debt crisis deepened,” said Terry Tian, alternative investment analyst for Morningstar. “Yet many hedge fund strategies delivered positive returns for the month.”

Trend-following strategies posted the largest gains in July, as gold prices advanced to new highs and U.S. Treasuries continued to rally. The Morningstar MSCI Directional Trading Hedge Fund Index, which tracks funds betting on momentum in currency, commodity, equity, and bond markets, climbed 2.5% this month, much more than other hedge fund indexes.

Funds with a broader geographic focus also delivered strong results in July. Outperformance in Asian-pacific stock markets in particular helped to bolster the Morningstar MSCI Global Markets Hedge Fund Index, which increased 1.6%. Multi-strategy funds provided welcomed downside protection as well in July. The Morningstar MSCI Multi-Process Group Hedge Fund Index rose 0.5%.

European-equity focused hedge funds produced some of the worst results in July. The Morningstar MSCI Europe Hedge Fund Index slipped 0.8%, more than most other hedge fund indexes. These hedged strategies still managed to outperform the MSCI Europe Stock Index, which declined 3.4% amid mounting pressure from sovereign debt woes and riots in Greece.

Arbitrage strategies fell flat this month, with the Morningstar MSCI Relative Value Hedge Fund Index eking out a small increase of 0.1%. Following seven straight months of modest gains, the Morningstar MSCI Merger Arbitrage Hedge Fund Index fell 0.1% in July, as merger deal spreads (or profits) remained tight.

Funds in Morningstar’s diversified arbitrage and U.S. long/short equity hedge fund categories netted the largest inflows in June, more than $300 million each. The largest outflows came from the equity market neutral and multistrategy hedge fund categories, which leaked approximately $143 million each. Overall, single-manager funds in Morningstar’s database experienced inflows of $645 million in June, a significant drop from previous months. Hedge fund of funds in Morningstar’s database experienced outflows of $124 million in June.

July returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of August 11, 2011. June asset flows are based on funds that reported as of August 12, 2011. Hedge fund investors, managers, consultants, and advisors can access additional information through the Morningstar® Alternative Investment CenterSM, formerly Morningstar® AltvestSM, the company’s research platform designed specifically for hedge funds, or Morningstar DirectSM, the company’s global research platform for institutions.

Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. Morningstar calculates hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class.

Thursday, August 18, 2011

Hedge Funds See Asset Inflows of $5.0 Billion for the Month

Ω
The Dow Jones Credit Suisse Hedge Fund Index Confirmed Up 0.69% in July


The Dow Jones Credit Suisse Hedge Fund Index gained 0.69% in July, with six out of ten sectors posting positive performance for the month. Managed Futures was the best performing sector last month, posting positive performance of 4.03% as manager positions in short-term rates, bonds, and short USD proved profitable during the month. In addition to its overall positive performance, the industry saw an estimated $5.0 billion in inflows. Including performance gains, total industry assets are now estimated at $1.83 trillion.

Performance for the Broad Index and its ten sub-strategies is calculated monthly. July, June and YTD performance numbers are available at www.hedgeindex.com.

Hedge Funds Hold Their Own in August

In one whiplash inducing week on Wall Street, markets have experienced some of the most extreme consecutive pricing swings on record, ultimately resulting in a 13.6% loss for the Dow Jones Global Index month-to-date (through August 10th).

However, according to Oliver Schupp, President of Credit Suisse Index Co., LLC, “Despite challenging conditions, hedge funds appear to have so far been effective in their attempt to provide a level of capital preservation, and overall have limited losses relative to perceived riskier asset classes such as equities. The Dow Jones Credit Suisse Core Hedge Fund Index is down 3.7% month-to-date compared to a loss of 13.6% for the Dow Jones Global Index over the same time period.

Friday, August 12, 2011

Eurekahedge: Hedge funds outperform global markets by 3.21% in July; ahead 2.52% YTD

The Eurekahedge Hedge Fund Index gained 0.62%1 in July, as managers across all regions continued to outperform the markets. The MSCI World Index fell 2.59%2 in July, as world markets grew increasingly risk averse.


Key highlights for July:

  • All regions outperformed underlying markets for the third consecutive month




  • Hedge funds outperformed global markets by 3.21% in July and remain ahead by 2.52% YTD





  • CTA/managed futures funds posted gains of 2.65%




  • Early reporting funds suggest that US$5 billion entered the sector in July, making it the eighth consecutive month to see net inflows




  • Assets in macro hedge funds reached a historical high, rising to  US$125.2 billion.


     



    Main Indices









































    Table 1: Main Indices
    Index

    July 2011

    Est1

    2011

    Returns

    2010


    Returns

    Eurekahedge Hedge Fund Index

    0.62
    0.95
    10.84

    Eurekahedge Fund of Funds Index

    0.43
    -0.32
    4.51

    Eurekahedge Long-Only Absolute Return Fund Index

    -0.61
    -1.62
    15.91

    Eurekahedge Islamic Fund Index

    -0.20
    0.85
    9.43







     


    Regional Indices


    Asia ex-Japan focused managers delivered the best returns in terms of regional mandates. The Eurekahedge Asia ex-Japan Hedge Fund Index was up 1.19%, with a majority of the gains coming from long/short equity hedge funds. While the largest markets did post declines (Australia, China and India, posted -3.98%, -2.18% and -3.44% respectively), managers investing in these countries were able to extract gains through their short exposures as well as value opportunities. Hedge funds investing the in the Asean region were helped by positive performance in the underlying markets (Asean markets are viewed as being more sheltered from global macroeconomic conditions than other regional markets).




    North American hedge funds also ended July in positive territory with healthy returns of 0.58%, outperforming the S&P 500 which was down 2.15%, amid a month of choppy trading. The market was dominated by concerns surrounding the US debt ceiling negotiations, European sovereign debt issues and weak US economic data. The market rallied mid-month, amid false optimism of a deal in the US debt ceiling discussions and announcements by European officials to ease concerns about the debt situation. This was followed by a steady decline in the last week of the month due to subdued economic growth data, which added to market volatility.





























































    Table 2: Regional Indices
    Index

    July 2011

    Est1

    2011

    Returns

    2010


    Returns

    Eurekahedge North American Hedge Fund Index

    0.58
    2.84
    13.60

    Eurekahedge European Hedge Fund Index

    -0.91
    -0.62
    9.21
    Eurekahedge Eastern Europe & Russia Hedge Fund Index
    0.95
    2.10
    16.56

    Eurekahedge Japan Hedge Fund Index

    0.39
    1.34
    8.21

    Eurekahedge Emerging Markets Hedge Fund Index

    0.16
    1.05
    10.57

    Eurekahedge Asia ex-Japan Hedge Fund Index

    1.19
    0.18
    10.20

    Eurekahedge Latin American Hedge Fund Index

    -0.94
    2.09
    9.80



     





    Strategy Indices



    Hedge funds posted mixed returns across the different strategic mandates with CTA managers posting the best returns. The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 2.65% in July. Managed future funds enjoyed gains from currency trades and fixed income futures. Commodity traders also witnessed gains during the month, with most commodities yielding positive returns. The S&P Goldman Sachs Commodity Index was up 2.43% during the month. Among other strategies, macro investing funds and multi-strategy managers witnessed gains of 0.91% and 0.47% respectively as their broader investment mandates proved helpful in the volatile market conditions.












































































    Table 3: Strategy Indices
    Index

    July 2011

    Est1

    2011

    Returns

    2010

    Returns

    Eurekahedge Arbitrage Hedge Fund Index

    -0.02
    2.65
    9.42

    Eurekahedge CTA/Managed Futures Hedge Fund Index

    2.65
    -0.45
    12.15

    Eurekahedge Distressed Debt Hedge Fund Index

    -0.02
    4.98
    23.04

    Eurekahedge Event Driven Hedge Fund Index

    -1.09
    -0.33
    15.47

    Eurekahedge Fixed Income Hedge Fund Index

    -0.03
    3.00
    10.37

    Eurekahedge Long/Short Equities Hedge Fund Index

    0.04
    0.61
    10.25

    Eurekahedge Macro Hedge Fund Index

    0.91
    0.34
    7.59
    Eurekahedge Multi-Strategy Hedge Fund Index
    0.47
    1.54
    9.57

    Eurekahedge Relative Value Hedge Fund Index

    -0.65
    1.46
    11.28



  • Hedge Funds Pull in $3.8 Billion in June, Sixth Straight Inflow, and Rake in $73.0 Billion in First Half of 2011.


    Fixed Income Hedge Funds Post 13 Inflows in Past 14 Months and Turn in Second-Best Performance of All Hedge Fund Strategies in First Half of Year. Macro Funds Post Solid Inflows but Underperform.


    The hedge fund industry took in $3.8 billion (0.2% of assets) in June, the sixth straight inflow as well as the eleventh in 12 months, report BarclayHedge and TrimTabs Investment Research. Industry assets decreased to $1.806 trillion from $1.822 trillion in May because performance was poor. The Barclay Hedge Fund Index decreased 1.0% in June.

    “Investors were very kind to hedge funds in the first half of the year,” says Sol Waksman, founder and President of BarclayHedge. “The industry raked in $73.0 billion (4.0% of assets), which goes down as the heaviest first-half inflow since 2007. But we wonder if strong inflows will persist through the remainder of the year in light of the recent bloodbath in equities.”

    Fixed Income hedge funds hauled in $15.1 billion (7.9% of assets) in the first half of 2011, the second-heaviest inflow of all hedge fund strategies. These funds took in money in 13 of the past 14 months and returned 4.9% in the first half of the year, the second-best performance of all strategies.

    “Fixed Income funds are on fire,” notes Minyi Chen, Vice President of Quantitative Research at TrimTabs. “Keep in mind that hedge fund managers, alongside most other segments of the market population, have been bearish on the long end of the curve all year. Nevertheless, the yield on the 10-year Treasury has plunged to 2.36% from 3.75% in February.”

    Multi-Strategy hedge funds raked in $15.2 billion (7.2% of assets) in the first half of 2011, the heaviest inflow of all hedge fund strategies, even though they posted a mediocre return. Similarly, Macro funds and Emerging Markets funds posted two of the heaviest inflows despite turning in the two worst performances of all hedge fund strategies.

    “We see lopsidedness between performance and flows regularly in not only our hedge fund flow data but also our retail and institutional flow data,” notes Chen. “These imbalances are predictive more often than not. We believe investors should consider investment candidates that are performing well but not attracting heavy inflows. Similarly, we fear any asset class into which investors keep flocking despite poor returns.”

    The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies.

    Hennessee: HEDGE FUNDS DECLINE -0.25% IN JULY



    Hedge Funds Protect Capital as Markets Decline


    Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index declined -0.25% in July (+1.41% YTD), while the S&P 500 declined -2.15% (+2.75% YTD), the Dow Jones Industrial Average fell -2.18% (+4.89% YTD), and the NASDAQ Composite Index decreased -0.62% (+3.90% YTD). Bonds rallied amid the volatility, as the Barclays Aggregate Bond Index advanced +1.59% (+4.37% YTD) and the Barclays High Yield Credit Bond Index advanced +1.16% (+6.20% YTD).

    “With defensive positioning and low exposures, hedge funds were able to protect capital as the equity markets sold off in July amid concerns about economic growth and the political impasse around the U.S. debt ceiling,” commented Charles Gradante, Co-Founder of Hennessee Group. “In July, there was better dispersion and lower correlations among securities as companies started to report Q2 earnings, which allowed managers to generate alpha on long and short portfolios. However, we have seen a spike in correlation and massive de-risking in early August, which will likely prove challenging for hedge funds in the short term.”

    “It has been a challenging year with several episodes where hedge funds had the potential to be ‘whipsawed’ by sharp reversals between risk-on and risk off periods,” commented Lee Hennessee, Managing Principal of Hennessee Group. “For the year, hedge funds are modestly positive, underperforming most traditional benchmarks. Hedge funds have been willing to sacrifice upside participation in order to be more cautious and defensively positioned. This will hopefully benefit managers in August as the markets are experiencing a sharp and painful correction in risk assets.”

    Despite gains early in the month, the S&P 500 ended July down -2.15% due to the political debate around the U.S. debt issue. The worst performing sectors were industrials (-7.02%) and telecommunication services (-6.67%). The only sectors positive for the month were information technology (+1.57%) and energy (+0.64%). The Hennessee Long/Short Equity Index declined -0.55% (+2.23% YTD) in July, its third consecutive negative month. While macro headlines were largely negative, companies reacted strongly to earnings and reports of forward guidance. According to S&P, over 70% of the index members either posted a gain or doubled the index decline of -2.15%. This significant dispersion was a benefit to stock pickers, allowing managers to generate alpha. In addition, managers are encouraged by the fact that second quarter earnings were strong. While Q3 and Q4 estimates are still expected to be record highs, managers are a bit concerned that expectations are too high. However, despite these positive developments, managers are cautious and have been reducing exposures over in recent months due to the macro headwinds and increased volatility.

    “In an effort to reduce risk, investors are piling into government bonds and selling risk assets, such as equities and commodities. This has been the ‘typical’ risk-off trade for the last 18 months,” commented Charles Gradante. “However, investors are not appreciating the real risk in Treasuries. It is really not attractive to buy Treasuries at 2.6% and be repaid in dollars that will be worth significantly less in ten years.”

    The Hennessee Arbitrage/Event Driven Index declined modestly in July, falling -0.22% (+1.85% YTD). Fixed income benefited from a flight to quality as investors piled into bonds and yields dropped significantly. U.S. Treasuries experienced significant gains in July. In addition, the U.S. corporate credit markets performed well during July as the S&P/LSTA Leveraged Loan Index gained +0.2% and the Barclays High Yield Credit Bond Index advanced +1.16%. Prices benefited from investor inflows, U.S. Treasury bond performance and improved corporate earnings. The Hennessee Distressed Index decreased -0.91% in July (+3.85% YTD). Some benefited from position specific catalysts, such as an asset sale by Nortel Networks, but in general, portfolios declined as the market sold off and investors reduced risk. The Hennessee Merger Arbitrage Index declined –0.87% in July (+1.84% YTD). Spreads widened and managers experienced losses, specifically in the media sector. The Hennessee Convertible Arbitrage Index returned -0.33% (+2.60% YTD) in July. The U.S. convertible market sold off as the Merrill Lynch CB index cheapened by 70 basis points to 28 basis points cheap in July, a level not seen since October 2009.

    “Managers reported that one reason for earnings slowdown in global growth companies is that margins have been shrinking in emerging markets, which are not providing the bottom line growth as originally expected,” commented Charles Gradante. “Competition is greater than anyone expected. The supply from competition outpaces demand putting pressure on margins for all G-7 exporters.”

    The Hennessee Global/Macro Index advanced +0.43% in July (-0.94% YTD). Global markets staged a brief rally during the beginning of the month, but retraced to post losses for the month, with the MSCI All-Country World Index falling -1.72% in July (+1.59% YTD). International hedge funds outperformed due to superior stock selection and conservative positioning, as the Hennessee International Index posted a gain, up +1.04% (+1.58% YTD). Emerging markets outperformed their developed counterparts. In July, the MSCI EM Index declined -0.74%, as Latin America was one of the worst performing regions. Hedge fund managers were up modestly, as the Hennessee Emerging Markets Index advanced +0.44% -0.03% YTD), benefiting from positive contributions from Asia, Russia and other emerging markets. The Hennessee Macro Index was positive, rising +0.62% for July (-2.05% YTD). Managers generated gains in fixed income, short the U.S. dollar, and long commodities, including precious metals, oil and agricultural commodities. Every major S&P GSCI commodity sector increased in July. Precious metals were the top performing sectors, up +9.5% on a weaker U.S. dollar and concerns about the global economy. Silver was the best performing commodity in July, up +13.2%. Gold ended the month at a new high, closing at $1,629, as investors sought to avoid paper currency.


    * For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).

    Tuesday, August 9, 2011

    HFR Asian Hedge Fund Industry Report for Q2 2011


    New capital inflows offset performance-based declines in 2Q11; Number of funds investing in India, South Korea increase


    The Asian hedge fund industry continued to attract new investor capital in 2Q11 despite increasing inflationary pressures, volatile commodity and global equity markets, and uncertainty regarding both U.S. and European sovereign debt according to data released today by HFR (Hedge Fund Research, Inc.), the leading provider of information on and analysis of the global hedge fund industry. Investors allocated $2.6 billion of new capital to Asia-focused hedge funds in 2Q11, offsetting a performance-based decline and increasing the total capital invested in Asia-focused funds to nearly $90 billion (7 trillion JPY; 603 billion Chinese Yuan).

    Asia-focused hedge funds generally posted modest declines for the quarter, with the HFRX China Index and the HFRX Japan Index declining by -1.95 percent and -0.42 percent, respectively, for the quarter. Year to date, the HFRX Japan Index has gained +0.08 percent while the HFRX Asia with Japan Index was essentially flat, posting a narrow decline of -0.01 percent.

    Growth, Focus and Concentration in Asian hedge funds

    The estimated number of Asia-focused hedge funds increased modestly during the quarter to 1,067, representing nearly 15 percent of the global hedge fund industry. While many Asian-focused funds invest broadly across the region, the number of funds investing primarily in China (32.9 percent), India (16.8 percent) and South Korea (4.2 percent) all experienced increases in the latest quarter. Geographically by firm location, the number of Asian hedge funds located in China and Singapore increased in 2Q11, while the number located in Japan and Australia declined for the quarter. The asset concentration in Asia-focused hedge funds also increased in 2Q11, with nearly 62 percent of the capital invested in funds with greater than $500 million, approaching the concentration level of the broader hedge fund industry.

    “Powerful and pervasive trends dominated both the Asian hedge fund industry and global financial markets in the second quarter, but the impact of these trends was felt in different ways across geographic regions, particularly in Asia,” said Kenneth J. Heinz, President of HFR. “Large disparities between developed and emerging markets, including inflationary pressures, commodity demand dynamics, and currency risk, impacted investors during the quarter. Global investors are allocating to the Asian hedge fund industry not only as a means to insulate themselves from the volatility of these trends but also to position their portfolios to benefit from for uncorrelated opportunities in coming quarters.”


    Hedge Funds Pull in $3.8 Billion in June, Sixth Straight Inflow, and Rake in $73.0 Billion in First Half of 2011.


    Fixed Income Hedge Funds Post 13 Inflows in Past 14 Months and Turn in Second-Best Performance of All Hedge Fund Strategies in First Half of Year.

    Macro Funds Post Solid Inflows but Underperform.


    The hedge fund industry took in $3.8 billion (0.2% of assets) in June, the sixth straight inflow as well as the eleventh in 12 months, report BarclayHedge and TrimTabs Investment Research. Industry assets decreased to $1.806 trillion from $1.822 trillion in May because performance was poor. The Barclay Hedge Fund Index decreased 1.0% in June.

    “Investors were very kind to hedge funds in the first half of the year,” says Sol Waksman, founder and President of BarclayHedge. “The industry raked in $73.0 billion (4.0% of assets), which goes down as the heaviest first-half inflow since 2007. But we wonder if strong inflows will persist through the remainder of the year in light of the recent bloodbath in equities.”

    Fixed Income hedge funds hauled in $15.1 billion (7.9% of assets) in the first half of 2011, the second-heaviest inflow of all hedge fund strategies. These funds took in money in 13 of the past 14 months and returned 4.9% in the first half of the year, the second-best performance of all strategies.

    “Fixed Income funds are on fire,” notes Minyi Chen, Vice President of Quantitative Research at TrimTabs. “Keep in mind that hedge fund managers, alongside most other segments of the market population, have been bearish on the long end of the curve all year. Nevertheless, the yield on the 10-year Treasury has plunged to 2.36% from 3.75% in February.”

    Multi-Strategy hedge funds raked in $15.2 billion (7.2% of assets) in the first half of 2011, the heaviest inflow of all hedge fund strategies, even though they posted a mediocre return. Similarly, Macro funds and Emerging Markets funds posted two of the heaviest inflows despite turning in the two worst performances of all hedge fund strategies.

    “We see lopsidedness between performance and flows regularly in not only our hedge fund flow data but also our retail and institutional flow data,” notes Chen. “These imbalances are predictive more often than not. We believe investors should consider investment candidates that are performing well but not attracting heavy inflows. Similarly, we fear any asset class into which investors keep flocking despite poor returns.”

    Dow Jones Credit Suisse Core Hedge Fund Index finished up 0.20% in July

    The Dow Jones Credit Suisse Core Hedge Fund Index finished up 0.20% in July led by gains in the Managed Futures sector.

    Oliver Schupp, President of Credit Suisse Index Co., LLC, said, "The Dow Jones Credit Suisse Core Hedge Fund Index finished up 0.20% for the month with three out of seven sectors posting positive performance. Managed Futures experienced the most significant rebound, gaining 3.61% as long commodity and equity positions resulted in gains mid-month."

    Separately, the Index's website has been redesigned to offer users an enhanced and comprehensive interactive experience. "Monthly performance for all sectors is available on our website, www.hedgeindex.com, which has been redesigned to give visitors more tools to analyze hedge fund industry performance," Schupp said. "As one of the industry's most transparent hedge fund index providers, the Dow Jones Credit Suisse family of hedge fund indexes provides insight into a previously opaque industry by publishing daily pricing, full index rules, sector weights, member fund listings, timely research and timely commentaries on current market trends."

    Index Jul 11 Jun 11 2011 YTD
    Dow Jones Credit Suisse Core Hedge Fund Index 0.20% -1.95% -0.91%
    Convertible Arbitrage -0.56% -1.45% -0.15%
    Emerging Markets 1.20% -0.11% 3.61%
    Event Driven -1.22% -2.69% -2.91%
    Fixed Income Arbitrage -0.35% 0.20% 2.02%
    Global Macro -0.16% -3.12% -4.19%
    Long/Short Equity 0.20% -1.66% 0.35%
    Managed Futures 3.61% -2.92% -0.99%
    About the Dow Jones Credit Suisse Core Hedge Fund Index

    Following the market events of 2008, increased attention has been focused on liquid hedge fund structures, including managed accounts, which tend to offer superior liquidity and transparency. The Dow Jones Credit Suisse Core Hedge Fund Index is the only hedge fund index to measure the performance of this rapidly growing industry segment by sourcing funds from multiple best-in-class managed account platforms, an advantage over indices which are built on a single managed account platform that may have a particular sector bias.

    The Dow Jones Credit Suisse family of hedge fund indexes also includes:

    The Dow Jones Credit Suisse Hedge Fund Index, an asset-weighted benchmark that measures hedge fund performance and seeks to provide the most accurate representation of the hedge fund universe.
    The Dow Jones Credit Suisse AllHedge Index, an investable index comprised of all 10 Dow Jones Credit Suisse AllHedge Strategy Indexes weighted according to the sector weights of the Broad Index.
    The Dow Jones Credit Suisse Blue Chip Hedge Fund Index, an investable index comprised of 60 of the largest funds across the ten style-based sectors in the Broad Index.
    The Dow Jones Credit Suisse LEA Hedge Fund Index, an asset-weighted, composite index which provides insight in to three specific regions of the emerging markets hedge fund universe (Latin America, EEMEA (Emerging Europe, Middle East and Africa) and Asia).

    Credit Suisse Reviews Hedge Fund Performance in the First Half of 2011

    -- The Dow Jones Credit Suisse Hedge Fund Index team today released its 2011 H1 Hedge Fund Industry Review. The report examines the drivers of hedge fund performance and asset growth in the first half of 2011. Some key conclusions from the report include:


    • Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, were up 1.7% in the first half of 2011, posting positive performance in four out of six months

    • The industry saw an estimated $33.8 billion in inflows in the first half of 2011. At this pace, the industry is on track to triple the asset inflows received in 2010

    • Fixed Income Arbitrage experienced the largest inflows in the first half of 2011, gaining $18.4 billion followed by Global Macro (+$14.4 billion) and Long/Short Equity (+$9.0 billion)

    • Including performance gains, we estimate current industry assets under management grew to $1.8 trillion as of June 30, 2011 up from $1.7 trillion on December 31, 2010

    • Large hedge funds (those with over $500 million) continued to dominate asset raising in the second quarter of 2011 with over $12.1 billion of inflows

    In addition, the team has also published a new monthly commentary which offers insight into June hedge fund performance. All industry commentaries and publications are available in the Research section at http://www.hedgeindex.com. Click here to view the 2011 H1 Hedge Fund Industry Review. Click

    Credit Suisse Liquid Alternative Beta ("LAB") Index Down 0.95% in July

    The Credit Suisse LAB Liquid Indices posted negative performance in July according to Dr. Jordan Drachman, Head of Research for Alternative Beta Strategies at Credit Suisse.


    Dr. Drachman noted, "The Credit Suisse Liquid Alternative Beta Index ("CSLAB"), which aims to reflect the performance of the overall hedge fund industry, generated negative performance in July, finishing down 0.95% for the month. The Long/Short Equity sector saw the most significant declines, finishing down 1.69% as uncertainty regarding Greek Debt and U.S. debt ceiling negotiations outshone a generally positive Q2 earnings season. Despite July losses, the strategy remains up 3.43% year-to-date."

    About LAB Indices

    The LAB series of indices seek to replicate the aggregate return profiles of hedge fund strategies using liquid, tradable instruments. LAB indices are priced daily and constructed using an objective and transparent rules-based methodology, making them ideal candidates for index-linked products that enable a range of applications, including liquidity management, tactical risk management, portfolio optimization and hedging.

    Performance for the LAB indices is shown below. Performance, descriptions, statistics and downloadable price history can be found on the Credit Suisse Alternative Beta website, www.credit-suisse.com/alternativebeta or on Bloomberg at < ILAB >.




    Jul-11 Jun-11 YTD
    ------ ------ -----
    Credit Suisse Liquid Alternative Beta Index -0.95% -0.58% 2.46%
    -------------------------------------------- ------ ------ -----
    Credit Suisse Long/Short Liquid Index -1.69% -0.36% 3.43%
    -------------------------------------------- ------ ------ -----
    Credit Suisse Global Strategies Liquid Index -0.60% -0.27% 2.10%
    -------------------------------------------- ------ ------ -----
    Credit Suisse Event Driven Liquid Index -1.11% -1.43% 2.80%
    -------------------------------------------- ------ ------ -----
    Credit Suisse Merger Arbitrage Liquid Index -0.75% -0.73% 3.69%



    The LAB series includes five separate indices which are distinguishable in terms of their level of granularity, reflecting the belief that the various strategies within the hedge fund industry are exposed to different risks and as such need to be modeled separately:

    June 2011 marked the three year anniversary of the Credit Suisse Long/Short Liquid Index which seeks to reflect the return of hedge funds as represented by the Long/Short Equity sector of the Dow Jones Credit Suisse Hedge Fund Index. Bloomberg ticker, CSLABLS;

    The Credit Suisse Event Driven Liquid Index seeks to reflect the return of hedge funds as represented by the Event Driven sector of the Dow Jones Credit Suisse Hedge Fund Index, Bloomberg ticker, CSLABED and

    The Credit Suisse Global Strategies Liquid Index seeks to reflect the return of all remaining hedge fund strategies not defined as Long/Short or Event Driven, Bloomberg ticker, CSLABGS;

    The Credit Suisse Liquid Alternative Beta Index seeks to reflect the return of the overall hedge fund industry, as represented by the Dow Jones Credit Suisse Hedge Fund Index, by combining the Long/Short, Event Driven and Global Strategies Liquid Index models. Bloomberg ticker, CSLAB;

    The Credit Suisse Merger Arbitrage Liquid Index seeks to gain broad exposure to the Merger Arbitrage strategy using a pre-defined quantitative methodology to invest in a liquid, diversified and broadly representative set of announced merger deals, Bloomberg ticker, CSLABMA.

    The LAB indices are benchmarked to the market-leading Dow Jones Credit Suisse Hedge Fund Indexes. As the industry's premier asset-weighted hedge fund indexes, the Dow Jones Credit Suisse Hedge Fund Index platform consists of a range of geographical and strategy-specific hedge fund indexes that are constructed from a proprietary database of more than 9,000 hedge funds which seeks to provide the most accurate representation of the hedge fund universe. Additional information about the Dow Jones Credit Suisse Hedge Fund Indexes -- including research, fund performance and constituent fund information -- can be found at www.hedgeindex.com .

    Monday, August 8, 2011

    UCITS HFS Index starts positive into second half of 2011, up +0.27% in July


    After a difficult first half of the year the UCITS HFS Index reverses its negative trend in July 2011 and reports a monthly performance of +0.27%. July started off very positively with gains of +0.62% in the first week of trading, being the only positive weekly return of the month though. While the second week was nearly flat with a loss of -0.01%, the third week saw the UCITS HFS Index lose -0.32%. As the last week of trading was quiet from a broad index perspective again with a minor loss of -0.02%, the UCITS HFS Index was able to finish July on an overall positive note. Of all funds tracked in the broad UCITS HFS Index 45.78% were positive in June 2011.

    From a sub-strategy perspective the top performers in July were CTA (+2.80%), Credit (+1.15%), and Fixed Income (+0.41%). All three of them only reported losses in the third week of the month, as all sub-strategies were negative that week. The worst performing strategies in July were Convertible (-1.00%), Event Driven (-0.80%) and Currency (-0.31%). Despite having started strongly into the month, these strategies started to under-perform after that, turning negative in the second half of July. It is noteworthy that Convertible, the best performing strategy in the first Quarter of 2011, has lost its way lately and turned negative from a year to date perspective (-0.20%).

    As a matter of fact ten out of the eleven sub-strategies of the UCITS HFS Index are negative in 2011, the only positive performer being Credit so far (+0.92%). Therefore it is no surprise that the UCITS HFS Index still is negative in 2011 and now stands at -1.89% from a year to date perspective.

    About the UCITS HFS Index


    The UCITS HFS Index Series is the first index family that tracks all UCITS funds using hedge fund strategies. The UCITS HFS Index Series includes all UCITS III funds that apply absolute return strategies, have more than 10 Mio. € of assets under management, offer at least weekly liquidity and have reported numbers for more than one month. Index tracking funds, long-only and 130/30 strategies are excluded.

    UCITS investors seeking Event Driven strategies



    In its latest survey on the growing market for Alternative UCITS, ML Capital observed Merger Arbitrage as the highest demanded strategy by the spectrum of Alternative UCITS investors, with 79 percent of all respondents planning to increase or maintain their exposure in the coming quarter.

    ML Capital surveyed a diverse range of active Alternative UCITS investors, who collectively manage €50 billion and today invest upwards of €10 billion into Alternative UCITS products. Questions are aimed at discovering their forthcoming strategy allocations and are asked each quarter to the same respondents, in order to track asset flows between UCITS strategies.

    Key highlights this quarter are as follows:

    § Merger Arbitrage strategies are likely to see significant inflows with 49% of respondents looking to allocate more to the asset class.

    § Big spike in demand for Market Neutral strategies, with one third of investors wanting to increase their allocations.

    § Drop in demand for most Equity Hedge strategies with the most dramatically affected being European and Global.

    § US long/short funds fare best of all Equities strategies, with almost 40% of respondents planning to raise their investments.

    § Japan is still struggling to attract attention with a lowly 7% of respondents planning to increase their allocations, the lowest level of any strategy in this quarters Barometer.

    Commenting on the latest survey, John Lowry, Co-Founder and Chairman of ML Capital: “The most significant trend in this quarters Barometer appears to be a widening out of interest across several strategies with more te

    Tuesday, August 2, 2011

    HFN Industry Overview: June 2011

    Complete report

    On July 22, 2011 with 3,560 hedge fund products reporting, the
    HFN Hedge Fund Aggregate Index was -1.16% in June and
    +0.42% YTD 2011 while the S&P 500 Total Return Index (S&P)
    was -1.67% during the month and +6.02% YTD.

    Hedge Fund Industry June Highlights:

    • Total industry assets fell an estimated 0.91% to $2.562
    trillion in June. Performance accounted for the majority of
    the asset decrease and net investor allocations were slightly
    positive for the month.
    • The primary factors influencing performance in May
    continued in June and the downward pressure on
    commodities and increased risk aversion hurt CTA/managed
    futures and equity strategies for the second straight month.
    • Fixed income strategies generally outperformed equity
    funds, but both groups were down in June. Mortgage sector
    funds posted their lowest return since November 2008,
    however the average return was still positive.
    • Japan focused funds posted their first positive aggregate
    results since the natural disaster in March. Funds in Japan
    had the best aggregate regional results in June.

    Prior to May and June, the industry had not had two losing
    months in a row since the financial crisis. The European debt
    crisis has likely resulted in lowered exposures to risky assets and
    losses in May and June were the result of this deleveraging.
    Defensive sectors and volatility strategies have performed well
    during the stretch. The HFN Healthcare Index was +4.10% in Q2
    and the HFN Short Bias Index was +2.80% in June.

    HFN developed the Outlier ratio to determine which sectors are
    producing returns outside of their normal ranges. In June,
    mortgage related strategies, though positive on average, had
    the second lowest average ratio which is an indication that lower
    levels of returns and losses are popping up from the group.

    • Total estimated hedge fund assets at the end of June 2011
    were $2.562 trillion, a decrease of 0.91%, or $23.6 billion
    from May.
    • Performance accounted for a decrease of $28.1 billion and
    investors accounted for a net inflow of $4.46 billion.
    • The core rate of growth (% asset change due to investor
    allocations/redemptions) was 0.17%, a decline in growth for
    the second consecutive month and the second slowest rate of
    growth in the past 12 months.
    • Total hedge fund AUM is now 15% below the all-time high set
    in Q2 2008.

    The trend in Q2 was three declining months of growth. While
    investors continued to allocate more than was redeemed,
    momentum has slowed. For the quarter, investors added an
    estimated net $32.4 billion and for the year a net of $75.3
    billion. This is far greater than either the first or second halves
    of 2010.

    Sub-Sector Specific Flows

    • The uptick in flows into Japan focused funds for the two
    months (April/May) following the disaster in March stopped in
    June and the group had slight net outflows during the month.
    • After two months of net outflows, there was a rise in
    allocations to funds investing in Latin America while Eastern
    European focused funds continued the trend of redemptions.
    • For the first month in the last seven, commodity focused
    funds had net redemptions while credit strategies continued
    to grow at a higher rate than equity strategies.
    • Despite a second straight month of higher than average
    losses, investor allocations to tech sector funds continued at
    an above average rate.
    • Market neutral equity funds had the highest strategy specific
    rates of inflows in June and statistical arbitrage strategies
    suffered larger than average redemptions.

    Performance Review


    Fixed Income (FI) Strategies


    • The average return of all fixed income focused strategies was
    -0.18% in June and +3.69% year-to-date.
    • Government bond strategies performed best in June,
    +0.41%. Mortgage strategies were the only other positive
    group, +0.10%. All other fixed income classifications were
    down in June.
    • Fixed income fund assets rose 0.51% in June to an estimated
    $696.6 billion. Investors added net $4.1 billion during the
    month.

    Equity (EQ) Strategies

    • The average return of all equity focused strategies was
    -1.13% in June and +0.56% YTD.
    • Short bias funds led all others in June, +2.80%. Natural
    resource sector funds were at the other end of the spectrum,
    -3.10%.
    • Equity fund assets fell an estimated -1.05% to $843.6 billion
    in June. Investors allocated a net $690 million; the second
    lowest total in 2011.
    Commodity and Foreign Exchange (FX) Related Strategies
    • Broad natural resource commodity strategies were -2.56% in
    June and -2.34% YTD.
    • Funds investing in metals markets lost most in June, -7.20%.
    FX strategies followed their worst month since 2003 with
    another down month, -0.66%, leaving the group -1.99%
    YTD.
    • Agriculture sector funds led the commodity sector group, but
    were still down in June, -0.52%.

    Summary Analysis

    The effects of broad market uncertainty appear to have finally
    materialized in hedge fund flows in June. It is important to
    remember that investor decisions to allocate or redeem
    generally lag current or even one month prior return data
    indicating June flows were evidence of rising caution two or
    three months prior. Given this scenario, it will likely be a slow
    start to the second half of 2011 in terms of industry growth.

    Survey: Hedge Funds More Bullish On Stocks

    After being bearish on the U.S. stock market, many hedge fund managers have had a change of heart and turned bullish on domestic stocks in a reversal that could underpin market action in the near term, the latest BarclayHedge/TrimTabs Investment research survey said.

    About 43 percent of hedge fund managers are now bullish on the S&P 500, a sharp increase from only 27 percent the previous month, and the highest number of bullish managers since December, the monthly survey showed. By contrast, bearish sentiment has plummeted to its lowest readings since January...

    Investors, indeed, poured more than $4.3 billion into U.S. equity ETFs in July, making the asset class the leading gainer in the month as it snatched nearly a third of all ETF asset inflows, according to data compiled by IndexUniverse.

    Hedge fund managers meanwhile remain “very sour” on long-dated Treasurys, the report said. Bullish sentiment on the 10-year note sank to its smallest reading in more than seven months...

    Managers are not as keen on the gold run, either. Nearly 40 percent of them said gold is perhaps the most overbought asset in the market today, compared with oil, equities, U.S. Treasurys and European stocks, the report said...

    The two firms, which surveyed 82 managers, track hedge fund flows monthly. BarclayHedge is a closely held Iowa-based research and portfolio management company focused on institutional clients, while TrimTabs is an investment research company.

    Complete article