Hedge Funds Add 2.46% In Oct., Down Less Than 3% YTD

Nov 9 2011 | 12:03pm ET

Hedge funds began to pull themselves out of the doldrums in October, leaving hope that they'll manage positive returns for 2011.

The Hennessee Hedge Fund Index rose 2.46% last month. The index remains down 2.95% on the year, having missed out on most of the month's 11% jump in the Standard & Poor's 500. Indeed, all but five of the 23 strategies tracked by the Hennessee Group remain down for the year. But the obstacles to getting out of the red seem less insurmountable.

"Renewed optimism about the U.S. economic recovery, Europe's ability to address its debt problems, and China’s ability to avoid a hard landing resulted in a remarkable ‘risk on’ phase,” Charles Gradante, Hennessee co-founder, said.  “Hedge funds posted their best monthly gain so far this year, driven by the rebound in risk assets." Having jumped back into the markets, hedge funds won't likely miss out on the returns—or losses—in the markets for the rest of the year, as they did in October.

All but two Hennessee-tracked strategies were in the black last month, led by financial equities funds, up 5.8% (down 8.43% year-to-date). Latin America funds rose 4.83% (down 5.9% YTD), growth funds 4.41% (down 3.44% YTD), opportunistic funds 4.4% (down 3.99% YTD), event-driven funds 4.27% (down 5.75% YTD) and value funds 4.25% (down 4.33% YTD).

Most major strategies posted gains. Emerging markets funds rose 2.94% (down 8.67% YTD), distressed funds 2.75% (down 2.32% YTD), merger arbitrage funds 1.47% (down 0.13% YTD), convertible arbitrage funds 1.15% (down 1.06% YTD) and market neutral funds 1.05% (3.99% YTD). Only macro funds suffered losses among major strategies, dropping 0.56% (down 0.56% YTD)—the only other strategy in the red, unsurprisingly, was short-bias, down 4.3%.

But short-bias remains the best-performing strategy of the year, rising 5.01% through October. Other top strategies on the year are fixed-income (1.22% in October, 4.14% YTD), market neutral and high-yield (0.43%, 3.05% YTD).

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