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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.
Hedge funds started to become more aggressive over the summer, in the run-up to a well-telegraphed move by the U.S. Federal Reserve to pump stimulus into the U.S. economy and as the European Central Bank stepped up efforts to reverse the debt crisis in the euro zone.
So far, 2012 has been a year that has flummoxed many seasoned market-watchers. They feared a repeat of 2011, when markets sold off sharply on concerns the euro zone would collapse, sparking a massive financial crisis and a deep global recession.
But as of Friday's close, the S&P 500 has rallied 16 percent since the start of the year, and many emerging markets and developed European markets have seen dramatic reversals of fortune over the summer. About 7 percent of the S&P's gains have come since early August. ... Continue to read.
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