Friday, 2 November 2012

Cash Outflows in Equity Markets

Interesting chart from Barron's regarding why hedge fund performance has been so poor this year.  Its rather amazing if you look at the numbers: 12%+ gain in S&P 500 index vs average 4.8% hedge fund return YTD net of fees.  That makes one wonder, what the heck are the hedge funds doing??  Well, interesting comments from the Barron's article:

Managers across all strategies are concerned about another 2008-like market crash, but in the meantime, they've been hurt by central banks' persistence at keeping interest rates low. Add in volatility and a U.S. presidential election where the top three issues are the economy, the economy, and the economy, and it's clear that hedge-fund managers are more concerned about managing risk than gambling on equities. 

But Ken Heinz, president of HFR, says this year's poor performance is more a case of growing fears among hedge-fund managers that a far-reaching economic crisis is coming. More managers are emphasizing less risk, even when playing the broader stock market. Third Point's third-quarter letter to investors said the fund matched the market's gain "with significantly less exposure."

Interesting that fear of an impending crash is leading hedge funds to cash out of the market.  Below, you can see the outflows from equity funds which has been significant with over $4.4 billion in the last 4 weeks alone.  The winners from an inflow standpoint has been bond funds.

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