WEST PALM BEACH, FL (HEDGECO.NET) – Hedge fund bubble fears have once again surfaced, as the key volatility measure indicator falls bellow the key level. Recently, the Chicago Board OptionsExchange’s Market Volatility Index VIX fell below the key 20 level. The index is a measurement of the stock market volatility. Many hedge fund players are more active in the markets when volatilitylevel spikes upwards.

According to published reports, stock market volatility picked up during the month of September, however volatility levels in October have fallen to 12.75. Market analysts said this level is the lowest point recorded by the benchmark since January 1996. Low volatility has been blamed partly for the lackluster returns posted by hedge funds during the past six months of the year.

While hedge fund returns faired better in September, [average hedge fund returned about 1.3% for the month] most funds posted negative returns during the months of April through August. Such level of returns falls short of the traditional double digit numbers posted by hedge funds during the previous years.

Alex Ineichen, head of alternative investment strategies at UBS Investment Research said a bubble results when prices overshoot fair value. Ineichen however, maintains that this is not a disaster scenario. He said, �Hedge funds are simply a way of managing money. The bubble characteristics are that return expectations may be too high … It’s not a disaster scenario, but reality is kicking in.”

Gavin Rankin, Europe Product Manager at Citigroup Private Bank said.� Hedge funds need volatility to make money. There hasn’t been very much of that recently, it�s not a bubble, it’s a reflection of where markets have been over the past few months … Even in convertibles it’s difficult to isolate the impact of higher money flows because the strategy is extremely dependent on volatility.”

Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net

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