Hedge funds lag equities as bull markets shake

Michael Bow
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LONG-SHORT hedge funds failed to keep pace with blue chip market returns in May, helping maintain the S&P 500’s lead over the popular hedge strategy, statistics show.

The closely watched Equity Hedge Index, which measures the performance of US managers who go long and short on stocks, gained 1.78 per cent in May versus 2.34 per cent for the S&P 500.

The S&P 500 has gained 15 per cent since January. Equity long-short funds have added seven per cent, according to Hedge Fund Research.

The stronger blue chip gains come despite a recent pullback in the bull market seen since the start of the year, over fears of US quantitative easing and a surprise downturn for Japanese equities.

“Risk-on sentiment quickly reversed to risk-off into month-end and ... certain quantitative, trend-following strategies were adversely impacted by these reversals,” Hedge Fund Research president Kenneth Heinz said.

The long-short index was dragged lower by the poor performance of short bias funds, which declined 3.24 per cent, offsetting strong gains in the energy, technology and healthcare sectors.

Hedge funds overall had their strongest May since May 2009, with the composite index up 0.54 after three consecutive years of drops. Year to date, hedge funds have gained 4.92 per cent overall.