In Focus: Hedge Funds Ride the Stock Market Wave Back Into Favor

March 13th, 2012 by

Hedge funds are riding the wave of stock market enthusiasm, generating solid returns for their investors once more, as clearly illustrated in the chart below — AlphaNow’s “In Focus”, a new feature that will appear several days each week, illustrating an important market theme or trend.

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More confident in the wake of the recent measures taken by European central bankers and regulators to fend off another systemic crisis, investors are more willing to live with the kind of higher-risk strategies (including the use of leverage) and investments that are often characteristic of the hedge fund universe. And those bets are paying off: the higher-risk and more volatile hedge fund strategies, such as special situations, “event-driven” investing and distressed security investing, are among the top performers so far this year.

So it should come as little surprise that investors are allocating more dollars – and euros, and yen, and Swiss francs – to hedge funds. As reported in this recent Reuters story, according to the GlobeOp Capital Movement Index (which tracks monthly flows in hedge funds that have collective assets under management of about $174 billion), inflows into those funds amounted to 2.1% of total assets in February.

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