Hedge funds returned an average of 7.4% in 2013, marking the fifth straight year hedge funds have trailed the Standard & Poor’s 500 Index. The Bloomberg Hedge Funds Aggregate Index is down 1.8% from its July 2007 peak. The index is weighted by market capitalization and tracks 2,257 funds.

Funds lagged behind the S&P 500 by 23 percentage points last year, the most since 2005, as the U.S. benchmark surged 30% for its best performance since 1997. Stocks rallied last year amid gains in consumer confidence and a housing rebound in the world’s biggest economy.

“Hedge funds are always going to underperform the S&P 500 in a year like this,” said Jay Rogers, president of Irvine, Calif.-based Alpha Strategies Investment Consulting Inc., which advises hedge-fund clients and managers. “Hedge-fund managers, if they’re doing what they should be doing, are hedging. Anyone who had any kind of short position last year had bad performance.”

Long-short equity funds rose 11% last year and multistrategy hedge funds increased 6.8%, while macro managers fell 2.2%.

Hedge funds last beat U.S. stocks in 2008, when they lost a record 19%, according to data compiled by Bloomberg, and the S&P 500 declined 37%. They outperformed the index by the most when they returned 31% in 1993, according to Hedge Fund Research Inc., compared with a 10% increase
for the S&P.