Hedge funds lose money in April, but beat stocks

Date: Monday, May 10, 2004

BOSTON (Reuters) - The average hedge fund lost money in April and slipped into the red for the first time this year, but these loosely regulated investment pools still beat the broader market, new data released on Monday shows.

Last month, hedge funds lost 0.78 percent after eking out a 0.31 percent gain in March, according to the Hennessee Group, New York-based consultants that help investors invest in this asset class.
Heavy losses at funds that specialize in technology stocks and emerging markets helped contribute to the overall decline.

Hedge funds are still up 2.54 percent in the first four months of the year, but that is far less than the double-digit returns that grabbed headlines and attracted scores of newinvestors when stocks sank after the dot-com bubble burst in March 2000.

Still, hedge fund industry executives say the asset class is performing well, noting that investors lost more money elsewhere.

In April, the blue-chip Dow Jones industrial average<.DJI> slipped 1.28 percent, while the technology heavy Nasdaq Composite Index<.IXIC> fell 3.71 percent. The broad Standard & Poor's 500 Index<.SPX> finished April down 1.68 percent.

The average stock mutual fund also recorded losses, falling 3.64 percent in the four weeks to May 6, data from research firm Lipper Inc., a unit of Reuters Group Plc, shows.

"As an asset class, hedge funds continue to protect the downside against equity and market declines," Charles Gradante, managing principal of the Hennessee Group, said in a statement.

Recent statistics on investment flows also confirm that hedge funds, once reserved primarily for very wealthy individuals, now appeal even to more conservative investors like pension funds and endowments.

In the first three months of the year, investors added $22.2 billion, new data from Hedge Fund Research Inc., or HFR, shows, just slightly less than the $26.8 billion they added in the last quarter of 2003. The hedge fund industry, which has ballooned in size in the last few decades, now manages roughly $860 billion, analysts said.

In April, so-called short sellers, the funds that peddle in pessimism and bet stocks will do nothing but fall, fared best and returned 8.43 percent, the Hennessee Index shows.

Short sellers had suffered through several rough months as the stock market recovered, but industry analysts expect this type of hedge fund may do well again in the coming months.

On the other hand, funds that specialize in technology stocks and emerging markets are suffering and analysts predicted more losses may be ahead amid fears that interest rates will soon rise, cutting off cheap financing.

In April, funds specializing in Latin America securities lost 7.54 percent, while technology funds fell 3.38 percent, Hennessee data shows.

In fact, one well-known hedge fund with a taste for technology stocks, Andor Capital, is said to be posting more losses this year. The company was scheduled to hold a meeting with investors on Monday and a company spokeswoman was not immediately available for comment.