Hedge funds make modest gains in first quarter

growthHedge funds made an average return of 3.8% in the first quarter, putting them on track for a stellar year, though the return was dwarfed by the performance of the S&P 500.

The popular United States stock market index returned more than 10% in the first three months of the year, a result none of hedge fund categories tracked by database provider eVestment could match, with one exception: Japan-focused funds benefited from the country's loose monetary policy to return more than 14% in the first quarter.

India-focused hedge funds were the worst-performing regional products, losing nearly 10% in the first quarter, and so undoing half the 19% gain they made in 2012, while on the whole, developed market funds outpaced emerging market vehicles.

Commodity investment was the least profitable strategy in the first quarter, according to eVestment's figures. These funds lost an average of 1.7%, while foreign exchange strategies barely broke even. In contrast, equity strategies returned an average of 4.8%.

“The vast majority of the best performing hedge funds in Q1 were directional equity focused funds operated by smaller firms,” says eVestment. “Within the equity hedge fund segment, this was one of the only groups to have positive flows in 2012 while investors reduced overall exposure to equity hedge funds.”

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