11/08/2010 Author: Zaki Abushal

Hedge funds pull back from equities ahead of July rally

Equities markets rallied strongly and unexpectedly in July, with the FTSE 100 posting 7% gains. The rise came off the back of three depressed months, and vindicated the ‘smart money’ moves made by hedge funds to lower their beta exposure and rein in risk taking.

Investors took the lead from hedge fund managers by pulling back their own exposure to the equity hedge strategy, which experienced $1.4bn outflows in the second quarter as investors made their way into fixed income and macro instead. The question that remains is: how long will hedge funds sit on the sidelines, particularly if equities continue their upward trajectory, and will managers feel pressured to get some of that beta?

That said, hedge funds didn’t miss out entirely on July’s gains. Antares European Fund returned close to 5% and Egerton European fund returned 4.3% for the month. Antares is up 6.89% for the year but Egerton is still down 1.89%