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Hedge Fund Returns Worsen: Is ‘Enormous Unraveling’ Near?

CNBC – The more stocks rise, the further behind hedge funds fall—with the industry now lagging market returns by double-digit percentage points.

Though hedges actually have attracted more investor cash this year, the bulk has gone to bond funds and away from equities, even though the Standard & Poor’s 500 [.SPX 1444.49 — UNCH ] is up a robust 14 percent so far in 2012.

As a result, hedge funds have returned just 3 percent year to date, though assets under management have swelled to $2.56 trillion, according to eVestment, a data firm that tracks the industry.

The change in fortune for hedge funds, which had trounced stock performance over the past two decades, has market insiders searching for answers.

“Could the underperformance be cyclical or is there a structural change that has changed the return structure of returns for the hedge fund industry?” Mary Ann Bartels, technical analyst at Bank of America Merrill Lynch, wondered in a report Monday. “We continue to conclude as in prior research, there (are) likely too many hedge funds chasing (too) few returns.”

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