Hedge funds continued to lag the broader markets in September, although most posted gains to close out the third quarter.
The Hennessee Hedge Fund Index rose 1.26% last month, about half the Standard & Poor's 500 Index. The benchmark is now up 5.03% on the year, compared to almost 15% for the S&P 500.
"Hedge funds performed well in September," Hennessee Group's Lee Hennessee said. "They were able to capture a portion of the upside due to increased net exposures. Shorting and hedging continue to be a drag on performance."
But, she added, "we are encouraged by an improvement in hedge fund performance over the last couple months. Correlations have declined, and managers are being rewarded for good stock selection."
Long/short equity funds performed best in September, rising 1.51% (5.13% year-to-date). Global and macro funds rose 1.1% (3.32% YTD), and arbitrage and event-driven funds 0.8% (6.06% YTD).
Just three of the 21 Hennessee strategy indices reporting for September were in the red on the month. Short-biased funds continue to take it on the chin, losing 3.7% on the month (down 12.86% YTD). Macro funds shed 1.63% on the month, but remain up 0.31% on the year. Likewise, fixed-income funds lost 0.09% in September but are still up 1.64% in 2012.
Other than short-bias, only Asia-Pacific funds are in the red on the year. But such funds cut their average loss to 0.42% in September with a 1.24% return.
The winners were led by 2012's strongest strategy, healthcare and biotechnology, up 4.69% (10.11% YTD). Emerging markets funds soared into the black with a 3.57% return (2.59% YTD), followed by financial equities funds (2.72% in September, 9.25% YTD) and Latin America funds (2.67%, 7.69% YTD).