Despite the many reiterations that this is the time to invest in equities, and that bonds are so much less exciting, hedge funds are still raking up exposure in bond trades. A report from Bloomberg shows that assets under management of debt focused hedge funds have risen to the same level as stock trading funds, as per data from Hedge Fund Research.
Hedge Funds Recruited $41.4 Billion
Low interest rates across-the-board deterred some investors from dipping into bonds, whereas the corresponding fiscal stimulus and bailout programs generated opportunities for new and experienced bond traders at the same time. Hedge Fund Research’s numbers show that hedge funds recruited $41.4 billion in new investments in 2012, marking the highest inflows since 2007. Until the end of the first quarter of 2013, total assets of bond trading funds rose to $639.7 billion, which is stepping over the total assets of stock trading funds that came to $638.7 billion, in the same period.
Hedge funders’ interest in debt also stems from the wide wake that has been left by banks since the announcement of Volcker Rule, which has yet to fully take effect. Stocks which are considered much riskier than bonds have experienced more enthusiasm from investors. Nonetheless as some banks closed their proprietary desks, much smaller hedge funds took their place and have started investing in the debt market.
Latest Thoughts On Stocks vs. Bonds
Renowned investors like Warren Buffett, David Tepper and Jeff Gundlach have touted that stocks are more worthy than bonds on several occasions. Bill Gross, another bond king along with Gundlach, has gone back and forth on whether stocks are dead or bonds are dead several times. In his latest interview he commented on stocks vs. bonds once again while discussing the ramifications of the Fed’s minutes. Gross said that he saw some overvaluation in 30 year treasuries and JGBs but they were still less “bubblish” than stocks.
Performance Of Bond Traders
Seasoned players like Bill Gross’s PIMCO have not been very successful in some bets this year. PIMCO Absolute Return Strategy (AUM $2.89 billion) is up 0.61 percent in Q1. PIMCO Global Credit Opportunity has done better with +7 percent return over the same period. However the size of these allocations is only a shadow of PIMCO’s flagship Total Return Fund which manages $239 billion.
Hedge funds like BlueCrest Capital, Pine River, and Millennium Management are among the fastest growing debt trading entities. BlueCrest Capital Intl Ltd. (AUM $12.6 billion) returned only 0.23 percent in the first quarter whereas the smaller allocation, BlueCrest Multi Strategy Credit Fund with $1.64 billion in AUM has returned 3.08 percent in the first quarter.
Israel Englander’s Millennium International (AUM $17.55 billion) has returned 3.65 percent YTD through April 11. As for Pine River Capital, it was one of the star performers last year with +30 percent returns in a couple of its funds. This year Pine River’s Liquid Mortgage Fund is up 1.17 percent YTD to April 11, whereas Pine River Fixed Income returned 7.04 percent in the same period.