The Average U.S. Hedge Fund gained 2.5% net in November. For the year to date, the Average U.S. Hedge Fund has posted a 4.5% net gain while the Average Offshore Hedge Fund, which earned 1.9% net in November, has risen 5.9% net for the year to date. Despite significant gains in November, stocks have not fared nearly as well, on average, as hedge funds in 2001. The Dow lost ?7.1% over the first eleven months of the year, while year-to-date losses for the S&P 500 and the NASDAQ stood at ?12.7% and ?21.6%, respectively. Hedge fund performance also compares favorably with the Average Equity Mutual Fund, which has underperformed the Average U.S. Hedge Fund by 19 percentage points for the year to date through November.
Hedge fund managers produced widespread gains last month, with over 75% of those reporting showing positive November returns. As expected, their performance was generally not as strong as that of the major equity indexes due to their hedged portfolios and many managers? misgivings about the durability of the fall rally. However, hedge funds? ability to short the market has certainly been a major contributor to their success so far this year, allowing them to make money as most traditional investments have faltered.
Offshore Emerging Market funds did especially well in November, averaging an 8.7% net gain. Aggressive Growth and Value funds were standouts as well, not surprising given that those funds tend to have the greatest net exposure to the U.S. equity market. Short selling was the only strategy to post a sizeable loss in November, although it has been a strong performer so far this year, gaining 11.7% net for the year to date on a global basis.
Hedge fund investors have to be pleased with their portfolios this year. Despite heavy losses among stocks and mutual funds in 2001, thirteen of the fourteen global hedge fund strategies we track are profitable for the year to date. In fact, four of them have generated double-digit gains.
It appears that 2001 will stand alongside 2000 as an example of hedge funds? ability to preserve capital in difficult markets. While an economic recovery may be in the making for 2002, the outlook remains anything but certain, given the profit warnings and layoff announcements that have dampened stocks this month. Regardless of where the market goes from here, hedge funds should continue to perform well as an asset class, thanks to their sophisticated investment strategies and flexibility in responding to changing market conditions.   
For November, the best performing strategies were Offshore Emerging Markets, U.S. Value, and U.S. Aggressive Growth, which had net returns of 8.7%, 4.9% and 4.1%, respectively. For the year to date through November 2001, U.S. Distressed Securities funds led with an average 15.2% net return. Offshore Distressed Securities and Offshore Short Selling strategies followed, with year-to-date net gains of 14.5% and 14.3%, respectively.
Source: Van Hedge Funde Advisors.