Multi-strategy funds appear to be the favorites of institutional investors over the past two years, notes eVestment.

In its recent monthly summary report on “Hedge Fund Asset Flows”, eVestment points out investors have again allocated heavily to hedge funds in October.

Multi-strategy scores over others

The eVestment report highlights that October witnessed heavy fund inflow from investors, marking the fourth consecutive month of strong flows. An estimated $9.3 billion was added during October totaling $56.4 billion during the four-month streak. With October’s performance gain, AUM increased by an additional $47.6 billion.

The report points out that the anticipated asset weighted performance of 1.74% are the industry’s largest since December 2010. With AUM of $2.802 trillion, the industry is set to touch its all-time pre-financial crisis peak.

According to the eVestment report, after a break in September, multi-strategy flows were again very positive in October. Multi-strategy and credit appear to have been favorites of institutional investors over the past two years. The report notes it will be interesting to see if the rise of interest in equity exposure hurts either, or if it will all be positive for overall hedge fund AUM.

The following table provides an updated hedge fund performance through October:

Multi-strategy Fund Flows

As seen from the above table, emerging market hedge fund flows were positive for the third consecutive month in October. According to eVestment report, such a trend has not been witnessed since early 2010. Interestingly, October experienced the largest inflow since March 2011.

The eVestment report also points out that the traditional institutional EM equity fund flows, which had been positive since early 2009, turned negative in the third quarter. According to the report, this may be an indication that additional EM exposure is preferred vis a vis long-only strategies.

Enhanced interest in equity hedge funds

According to the eVestment report, investor showed enhanced interest in equity hedge funds, as the equity hedge funds witnessed elevated inflows in October. The report points out that after 24 months of negative investor sentiment which appears to have ended in June; $18.4 billion has been allocated in the ensuing four months. This has pushed 2013 flows into positive territory.

Focusing attention towards MBS, eVestment report points out data on MBS strategies has fluctuated over the last several months. According to the report, a trend of negative investor sentiment has been witnessed toward the group, as during the last five months, only one month has witnessed net positive flows despite posting positive returns.

The report also highlights emerging market hedge fund flows were positive for the third consecutive month in October, which was not witnessed since early 2010.

The following table summarizes the estimated assets and investor flows through October:

Estimated assets and investor flows