Hedge funds play ‘catch-up’ after missing rally
Many U.S. hedge funds that have lagged the stock market rally in 2012 are now buying riskier stocks and commodities - and using more borrowed money - in an effort to play catch-up.
Funds have cut cash holdings and reversed broad bets against the surging market. If the shift in the $2 trillion hedge fund industry continues, it could drive asset prices even higher.
“We’ve been watching for months for signs of a catch-up in risk and are at last starting to see it, as funds raise risk to markets to lessen the risk of missing the markets,” Philip Vasan, global head of Credit Suisse’s prime brokerage, told a conference call of several hundred hedge fund clients and their investors on Wednesday, according to a transcript of his remarks provided to Reuters.
Through the end of August, hedge funds gained around 4.5 percent, according to Credit Suisse. By comparison, the total return for the S&P 500 Index was 13.5 percent through August, and 8.2 percent for the MSCI World Index. Hedge funds focused on credit strategies have been the best performers, with returns of more than 7 percent this year.