Hedge funds soared in the third quarter, topped off by a 3.1% return in September, according to Morningstar.
“Paced by an exceptionally strong September, hedge funds began to regain their swagger in the third quarter,” said Nadia Papagiannis, Morningstar alternative investments strategist. “The road to recovery for hedge funds was paved by strong performance in riskier asset classes such as emerging markets, distressed, and small-cap securities.”
The Morningstar 1000 Hedge Fund index is up 17.22% this year, and all but two of the data provider’s strategy indices were in the black last month. But the average hedge fund is still below its high-water mark: The Morningstar index dropped 25.2% through February, and is up only 20% since then. That leaves 11.4% to go before the average fund has returned to its pre-crisis level.
Distressed securities funds did best in September, which returns of 6.65% and 12.3%, respectively. Emerging markets equities funds are the best-performing strategy on the year at 41.79%, after returning 6.48% last month.
Other strong September performances were posted by U.S. small-cap equity funds (4.97% in September, 30.68% year-to-date) and emerging markets funds (4.62%, 30.96% YTD).
The only losing strategies in September were short equity funds (down 1.55%, up 2.18% YTD) and Japan funds (down 1.15%, up 9.75% YTD).
Funds of hedge funds rose 2.1% on the month and are up 11.56% on the year.