Tuesday, August 9, 2011
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).
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 .
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.
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.
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