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Hedge Funds Post Inflow of $16.0 Billion in October, Fourth Straight Inflow since November 2009; Hedge Fund Investors Warming to Risk - Distressed Securities Funds Post Heaviest Inflow since February

“Flows are doubtless following performance,” said Sol Waksman, founder and President of BarclayHedge.  “Hedge funds returned 1.95% in October and 7.10% in the four months following the May-June skid.  Also, our preliminary data shows that hedge funds are outperforming the S&P 500 by about 21 basis points through November.”

Distressed Securities funds hauled in $3.8 billion (3.3% of assets) in October, the heaviest inflow of any hedge fund strategy, while Emerging Markets funds posted an inflow of $2.2 billion (1.0% of assets).  Meanwhile, Fixed Income funds received only $506 million (0.3% of assets), the lightest inflow since April.

“Hedge fund investors are exhibiting a healthier appetite for risk,” noted Waksman.  “They are finally venturing into areas like Distressed Securities after embracing conservative strategies for most of the year.”

Commodity trading advisors (CTAs) received $7.9 billion (2.8% of assets) in October, the eighth straight inflow, while funds of hedge funds took in $3.3 billion (0.6% of assets), the fourth straight inflow.  Meanwhile, hedge fund managers are capitalizing on kind conditions heading into 2011.

“Borrowing money to buy assets is virtually costless, investors handed hedge fund managers $32.1 billion in the past four months, and margin debt is soaring,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “At the same time, the rolling 12-month beta of hedge fund returns sits below the long-term average, and that of equity long-short funds is dipping below zero.  Managers should be especially eager to book fat profits through year-end, but they remain very reluctant to make directional bets on equities.”

Managers are also extremely bearish on the 10-year Treasury note, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers.  Bearish sentiment soared to 49% in November from 28% in October, while bullish sentiment sank to 13%, the lowest level since the inception of the survey in May.

“Retail investors and pension funds have been pouring money into high-flying fixed income for nearly two years,” noted Deluard.  “But now hedge fund as well as retail bond inflows have ground to a halt, and mom and pop are ditching munis and junk.  The more the infatuation with bond funds fades the more we fear the fallout will prove particularly ugly.”

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.  Click here for further information.

BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.

TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections.  Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990.  For more information, please visit us here.