Hedge funds outperform stock indexes in first half

Date: Wednesday, July 14, 2010
Author: Jim Kim, FierceFinance

Well, at least they're beating mutual funds. That's the mantra of a lot of hedge fund managers (hedge fund news) when performance takes a dip. Hennessee group said its Hedge Fund Index rose 0.2 percent in the first half of this year, while the S&P 500 Index fell 7.57 percent, the Dow Jones Industrial Average declined 6.27 percent and the Nasdaq Composite dropped 7.05 percent.

We've become accustomed to relative outperformance by hedge funds. Still, the Hedge Fund Index's first-half performance was fourth-worst since Hennessee started its index in 1987. The three worse years were 2008, 2002 and 1994.

As long as they are beating plain-Jane equity funds, they will likely escape major criticism. However, the pitch has always been that volatility is like fuel for hedge funds. If they're so great at shorting, shouldn't they be making gains, not just smaller losses? Perhaps we all ought to orient ourselves around the idea of downside protection more so than big gains from down markets.

The best performing class was Arbitrage/Event Driven investing. The index rose 3.21 per cent. Arbitrage funds of all types have generated profits, including fixed income, distressed, event driven, convertible arbitrage and merger arbitrage strategies.

For more:
- here's the release