On average, hedge funds were up 2.44% July and 11.89% for the first seven months of the year according to data from HedgeFund.net (see hedgeweek article). This was the best seven month performance data since 1999, driven in part by the rising equity markets and near record performance in directional fixed income. Convertible arbitrage returned 6% in July and is the best strategy year to date, while managed futures have lagged equity-based strategies. Nonetheless, even with the current out-performance, 54% of funds are still below January 2008 levels.

36 South Investment Managers, the hedge fund managers who made 234 percent betting on "black swan" events in 2008, are now placing their bets on hyperinflation (see Bloomberg article). The new fund, called the Excelsior Fund, is targeting returns that will be five times the average inflation rate for the France, Germany, Japan, U.K., and U.S. economies. The Excelsior Fund will make its bets on inflation by buying long-dated options that are currently cheap (i.e., typically deep-out-of-the-money options). The fund will be using the options to look for increases in commodities and equity prices, along with increases in bond yields and currency volatility. Given that the options are deep-out-of-the-money, the fund will be very high risk, but carry the potential for very high returns.

According to a Financial Research Corporation report, equity funds and ETFs posted April net inflows of $8.5 billion and $6.9 billion, respectively, reversing the trend of outflows in March (see Investment News article). Corporate-bond funds had the largest net inflow in April at $16.6 billion, while international fixed-income funds had the largest net outflows at $447 million. As posted earlier, risk taking is back - at least it was in April.