Hedge Funds Post 17th Straight Annual Gain

by Phillip Morton, Investors Offshore.com

18 January 2005

The average hedge fund recorded its seventeenth consecutive positive year in 2004, although returns failed to match those of the stock markets, data released by Van Hedge Fund Advisors International shows.

The final December results for the index, based on the performance of approximately 800 hedge funds, showed a 1.5% net gain last month and a 7.7% net gain for 2004 as around 84% of funds reported a positive return for the month.

Interestingly, the results also revealed that hedge funds based in the United States, which gained 1.6% last month and 8.4% last year, fared slightly better than those domiciled offshore, which returned 1.4% for December and 7.1% for 2004.

“Hedge funds had another solid month in December and delivered another winning year to investors,” a company statement said.

“Although hedge funds in 2004 didn’t match their performance from the previous year, they performed well given the challenges they faced: a range-bound stock market until the November elections, rising oil prices and interest rates, and dampened volatility during parts of the year,” the firm added.

Although the Van index outperformed bonds in the Lehman Brothers Aggregate Bond Index by 3.4% in 2004, hedge funds failed to keep pace with stock market returns, with the major equity benchmarks returning in excess of 10%, helped by a post-US election rally in the final two months of the year.

Nevertheless, all four of Van’s broad strategy group indices generated gains last year. The Long/Short Equity Group performed best, gaining 8.7% net for the year. The Specialty Strategies Group posted an 8.1% net return for 2004, followed by the Market Neutral Group, up 7.1%, and the Directional Trading Group, up 5.0% net.

The Long/Short Equity Group also had the best return for the month of December, a 2.0% net gain, followed by the Market Neutral Group, Specialty Strategies Group, and Directional Trading Group with net December returns of 1.3%, 0.7%, and 0.2%, respectively.

Among individual strategies, Distressed Securities produced the healthiest return, gaining 18.2% net for the year, followed by Emerging Markets which returned 13.3% and Value (a long/short equity strategy), returning 11.6%.

Short Selling was the one strategy to post a loss for the year, losing 9.3% net.

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