Hedge Funds Faced Tough Inflows and Performance, but Some Still Outperform

Hedge funds are often tracked by the media with a bit of a mysterious allure that often borders on misunderstanding. Hedge funds generally seek to have absolute returns, but in recent years the performance and fund inflows and outflows have become open season for critics. Now the most recent data from TrimTabs and BarclayHedge shows that hedge funds took in net inflows of capital of only $430 million during April. The report also signaled that the hedge fund industry underperformed against the S&P 500 Index by 126 basis points (or 1.26%) in the month of April.

The net $430 million is listed as being only 0.02% of assets, and it is barely half of the $817 million inflows in March. April’s hedge fund industry returns came to 0.6%, versus the S&P 500’s 1.8% gain. This trend was also similar over the past 12 months, when hedge funds earned 8.1% against a 14.3% return for the S&P 500.

It is not all negative at all for hedge funds, particularly those funds managed by stock pickers. TrimTabs said that stock-picking hedge fund managers performed well in April and in the past 12 months. The so-called long only equity hedge funds turned in gains of 4.4% in April, and that made them the best-performing sector of the 13 major fund categories. But as far as inflows, the report today showed that fixed income and multi-strategy hedge funds continue to be the only strategies to post inflows in the past 12 months. It will be interesting to see if that continues now that the rising interest rate risk has arrived.

A blemish continues for the funds of hedge funds group, as they lost some $4.2 billion in April and have lost a total of $53.2 billion over the past 12 months. It is worth noting that the outflows may be counterintuitive, as they outperformed the hedge fund industry by 20 basis points. That represented the first month in 10 months that the sector outperformed.

If you want exchange traded funds (ETFs) that track hedge funds or that invest as if they were hedge funds, here are several for that: IQ Hedge Multi-Strategy Tracker ETF (NYSEMKT: QAI), IQ Hedge Market Neutral ETF (NYSE: QMN), Forensic Accounting ETF (NYSEMKT: FLAG), SPDR SSgA Multi-Asset Real Return ETF (NYSE: RLY), and the Ranger Equity Bear ETF (NYSEMKT: HDGE). Each of these have their own strategies and investors have to consider strategies, suitability and tax ramifications of each fund individually.

TrimTabs said that the inflows and outflows report is based on data from 3,393 different funds.