Hedge Funds Redeem $5B In December '11

Feb 7 2012 | 12:45pm ET

Hedge funds redeemed about $5.2 billion in December 2011 and underperformed the S&P 500 for the year, according to the latest report from BarclayHedge and TrimTabs Investment Research.

Industry assets hit their lowest level since February 2010, losing 7.7% to $1.64 trillion.

“The Barclay Hedge Index fell 0.4% in December after decreasing 1.4% in November,” says Sol Waksman, founder and president of BarclayHedge. “From May 2011 onward, hedge fund performance was negative in every month except October.”

“Hedge funds underperformed the S&P 500 last year, falling 5.5% compared to a flat return for the S&P 500,” says Leon Mirochnik, an analyst at TrimTabs. In December, only three of 14 major hedge fund categories tracked by TrimTabs and BarclayHedge—equity market neutral, merger arbitrage and fixed income—showed positive returns.

A survey of 108 hedge fund managers in the third week of January found 45.4% of them bullish on U.S. equities, up from 42% in December, 2011. This constitutes the second-highest reading since December 2010.

That said, the picture painted by the latest TrimTabs Demand Index, which monitors 21 key sentiment indicators to time U.S. equities, is less rosy: "The Demand Index is down more than 50% since the beginning of January, which stands as a warning to bullish market participants,” said Mirochnik. The index signaled a strong bullish stance in late November, just before the markets surged. “This sudden reversal in January is cause for caution,” said Mirochnik.

The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis.

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