Hedge Fund Barometer Reveals Renewed Interest In Previously Unpopular Sectors

by Carla Johnson, Investors Offshore.com

25 July 2005

TARA Capital, the European hedge fund advisory firm, has released the results of its Summer 2005 Hedge Fund Strategy Barometer (HFSB),which, according to the CEO and founder of TARA Capital, John Lowry, are in stark contrast to the Spring 2005 HFSB.

“Several sectors recently shunned by investors are coming sharply back into focus,” Mr Lowry observed.

This is the eighth barometer in a quarterly series that highlights intended asset allocation moves across hedge fund strategies. The institutions surveyed in the HFSB have a combined commitment of $72 billion to hedge funds.

Relative Value Strategies:

The biggest surprise revealed by the HFSB was a sharp turnaround in the fortunes of the Convertible Arbitrage sector. While 89% of respondents in the previous survey indicated they would be cutting exposure to converts, only 12% now plan a decrease.

Although some investors feel that the hot money has exited and there is a significant technical rebound due for Convertible Arbitrage, many managers could decide to throw in the towel if their funds are significantly below high watermark levels.

Big losers this quarter in the relative value space were Fixed Income and Equity Market Neutral funds.

“Hedge fund investors appear to be taking Alan Greenspan’s lead and are puzzled with the bond markets, hence the big swing away from the Fixed Income space,” noted Lowry.

Event Driven Strategies

Merger Arbitrage is coming back into favour, but Multi-Strategy is losing support. “This may reflect a lack of experienced managers in the sector,” says Lowry. Despite yielding decent returns on the whole, distressed funds have also become very unpopular, with the latest results being the worst ever recorded by the HFSB.

Long-Short Equity Strategies

Japanese funds look set to receive significant inflows and all other Equity strategies are holding steady, with a significant move back to Dedicated Short funds.

Managed Futures and Global Macro Strategies

Managed Futures and CTA funds have traditionally moved in and out of investor favour more than most strategies. This is demonstrated again in the latest survey, which shows a marked decrease in demand for the CTA sector.

Global Macro did far better this quarter. For the first time in the history of the HFSB, none of the respondents plan to reduce their allocations to this sector.

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