Hedge funds were up for the second straight month in October, even though some underlying trends have been changing direction. Distressed debt, still the most profitable strategy year-to-date was flat in October, with both performance and net asset flows close to zero, while long/short equity and multi-strategy funds had the best gains for the month with 1.58% and 1.6% respectively, according to research from Eurekahedge’s latest newsletter. The Eurekahedge Hedge Fund Index was up 1.41% for the month, bringing it up to 5.84% returns so far this year.

Total assets under management (AUM) went up $19.7 billion, with $18.6 billion of that coming from performance gains and the rest from continued net inflows as more investors get comfortable with the idea of including hedge funds in their portfolios.

Hedge funds should see increased asset flows

Asia ex-Japan had the strongest growth last month with 1.44% change in total assets. North America saw a 1% increase in total assets with strong performance and 0.2% outflows, which are more likely to be profit taking rather than investors losing confidence in hedge funds. “Given the consistent performance of North American hedge funds over the years we anticipate further asset flows to North American hedge funds in 2014. The size of the industry is expected to grow to US$1.5 trillion over the next two years. Investors in the region are increasingly keen to allocate to hedge funds due to the strong performance and downturn protection that the managers have historically provided,” says the  Eurekahedge report. Europe and Japan weren’t far behind with 0.97% and 0.84% growth, while hedge funds covering Latin America saw just 0.55% growth in October.

Hedge funds

Multi-strategy funds lead the way

Long/short equities and multi-strategy funds had the best performance at 8.5% and 4.4% respectively, significantly better than any other category. CTA/managed futures saw 2% performance growth in October while no other strategy mandate broke 1%. Multi-strategy funds had the largest net asset inflows with 0.4% while event driven hedge funds has the largest outflows, losing 0.3%. “Since the financial crisis, the investors’ approach to hedge funds has changed to focus on a constant look out for diversification within hedge fund holdings, due to which, multi-strategy fund have become quite popular,” says the Eurekahedge report. “We expect multi-strategy funds to cross their historical high mark before the year-end.”

asset flow by strategy 1113