Hennessee: Hedge Funds Off To Best Start Since 2000

Mar 9 2012 | 11:31am ET

Hedge funds continued to bounce back from their miserable 2011 with their best opening two months in more than a decade.

The average hedge fund returned 1.72% last month, according to the Hennessee Hedge Fund Index. Added to January's 2.3% gain, the average industry player is up 4.07% on the year.

“Hedge funds are off to the best start since 2000,” Hennessee co-founder Charles Gradante said. “During the first two months of the year, hedge funds have benefitted from a better investment environment relative to 2011, with improved investor sentiment, greater risk taking, lower correlations and lower volatility. Markets are responding to fundamentals, which is benefiting stock pickers. While many risks remain, there is optimism around a better economic outlook for the U.S. and stability in the Euro zone.”

Still, hedge funds have failed to capture most of the upside from the early-year market rally, which has pushed the Standard & Poor's 500 Index up 8.6% in January and February. That could begin to change, according to managing principal Lee Hennessee.

“Hedge funds performed well in February generating gains despite conservative exposures," Hennessee said. "As the investment environment has improved over the last two months, we have seen managers increase exposure levels."

Financial equities funds did best in February, adding 5.3%. It's also the best-performing strategy of the year, up 9.13%. Other strong performers include Asia-Pacific funds (4.04% in February, 4.74% year-to-date), telecom and media funds (3.12%, 6.7% YTD), international funds (2.85%, 5.16% YTD), emerging markets funds (2.69%, 6.77% YTD) and Europe funds (2.63%, 6.7% YTD).

There's very little red ink on the Hennessee report at all, with the exception of short-bias funds. They lost an average of 5.06% last month as the S&P rallied 4.06%, and are now down an average of 9.89% on the year. In February, there was only one other loser, with healthcare and biotechnology funds dropping 0.45%. But no other strategies are down year-to-date.

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