Hedge funds averaged total returns of 2.10% in the first
quarter-outperforming major indexes such as the S&P 500 and the
MSCI World Index, according to Morningstar Inc.
The investment research company, drawing upon its database of 6,000 hedge funds, said that the best performers in the product category included convertible arbitrage funds, with 4.67% average returns, and emerging markets funds, which averaged a 5.50% return for the quarter.
Among the emerging markets funds, China funds were the leading gainers, despite a February stock market plunge that was partly due to concerns about future growth rates in China.
Hedge funds in the distressed companies category also performed well, according to Morningstar, with an average return of 4.15%. "These firms provide liquidity when companies, like the subprime lenders, fall on bad times," Morningstar said in a press release.
Increased corporate activity helped event-driven and merger-arbitrage funds gain 4.21% and 2.88% respectively in the first quarter, which also saw a 27% increase in merger and acquisition activity, according to Morningstar.
Among the poorest performers in the hedge fund category were equity net neutral funds, which only gained 20 basis points above the Treasury bill, at 1.51%. Global macro funds lost 47 basis points, as the strategy of financing higher-yielding assets with lower-yielding currencies "took a turn for the worse," according to Morningstar.