Hedge Funds Take in $4.0 Billion in May as Strengthening US Economy Boosts Investor Optimism

Originally published on 17 July 2018

Demand for hedge funds crept upward in May, according to the Barclay Fund Flow Indicator, as equity markets rebounded and the US economy improved. Industry assets remained at an all-time high of $3.0 trillion.

Data drawn from more than 5,000 hedge funds in the BarclayHedge database estimated that the hedge fund industry (excluding CTAs) took in $4.0 billion (0.1% of assets) in May, reversing $1.9 billion in redemptions the month before. Industry assets climbed 3.5% year-to-date and surged 17.6% over the trailing 12 months, according to the Barclay Fund Flow Indicator, a monthly big-picture report on the health of the alternative investments industry.

“For all the stress over trade and volatility in May, hedge fund investors noted that US economic fundamentals improved amid strengthening corporate earnings, low inflation pressures, and the prospect of mild upticks in interest rates,” said Sol Waksman, founder and president of BarclayHedge.

Fixed Income hedge funds enjoyed the heaviest total inflows in the trailing 12 months ending in May, adding $28.6 billion (6.0% of assets). Equity Market Neutral funds saw the heaviest 12-month demand when measured by percentage of assets ($13.4 billion, 18.3% of assets).

At the regional level, hedge funds focusing on the US and Offshore Islands fared best in May, taking $7.4 billion (0.5% of assets) and reversing two months of redemptions. Funds focusing on Continental Europe suffered the highest May outflows at $10.4 billion (-1.4% of assets). “Hedge fund investors are weighing the risk of a rising populist tide in Italy and across the continent,” Waksman said.

“Demand for hedge funds focusing on the UK and Offshore Islands slowed to a trickle. These funds bear watching,” Waksman noted. “They added a slim $650 million (0.1% of assets) in May, a sharp slowdown from the trend of the past 12 months, when they had the strongest regional flows.”

In the managed futures sector, commodity trading adviser (CTA) funds added $530 million (0.1% of assets) in May, a turnabout from outflows of $1.3 billion (-0.4% of assets) the month before. CTAs have endured tepid demand since March, a notable reversal from January-February, when they raked in a combined $15.4 billion (4.2% of assets).

“The fall-off in demand since February could be a sign that investors suspect oil prices have risen too far too fast,” Waksman said.