18/08/2010 Author: Zaki Abushal

Hedge funds focus on macro and fixed income in July rally

Implied correlation among the S&P500 is at an all-time high; little wonder then that investors are turning their attention away from hedged equity, and towards macro and fixed income arbitrage bets.

The main worry isn’t the shift in capital flows out of equity-hedged strategies, since flows overall are picking up into hedge funds, but the capital, amassed in beta, that will take a nasty hit if markets dive. Long/short managers have been cautious, paring positions and reducing net exposures.

But for many, the prospect of making money from July’s rally was too great. Horseman needed a good month and got it; its European long/short product was up more than 8% in July and its global version up more than 5%.

Brummer Partners’ long/short Zenit fund is also in the red for the year, but made some headway with a 2.5% July return and is now down just 3.3% YTD.