Hedge funds posted another positive quarter to start off 2002. The Average U.S. Hedge Fund earned 1.4% net over the first three months of 2002, beating both the S&P 500?s 0.3% return and the NASDAQ?s ?5.3% loss. The Dow, however, rose 4.3% for the quarter. For the month of March, the Average U.S. Hedge Fund gained 2.2% net, its best month since last November.
The market?s March rebound provided long-biased equity managers a chance to make up lost ground, with Aggressive Growth and Value strategy funds among the better performers last month. Emerging Markets and Short Selling strategy funds were the best performers for the quarter overall. Of course, the vast majority of hedge funds engage in short selling to some extent and that was no doubt a contributor to their superior performance last quarter. While U.S. and offshore hedge funds averaged 1.4% net and 1.6% net in the quarter, respectively, the Average Equity Mutual Fund returned only half that, 0.7%. U.S. Emerging Markets funds averaged a 4.7% net gain for March and 9.2% net for the first quarter, extending their strong performance from late 2001. Equity benchmarks show robust gains over the last two quarters in such markets as Mexico, Russia, and Thailand, a few of the countries where Emerging Markets funds invest.
Just over two-thirds of reporting hedge funds showed a positive return for the first quarter while more than 80% were profitable in March. Ten out of the fourteen different U.S. hedge fund strategies in the Van Hedge Fund Index were winners last month while twelve were positive for the first quarter. The stock market was ambivalent last quarter, with investors wavering between promising economic news and Enron-related accounting concerns. The Van Hedge Fund Indices show that these funds were broadly successful despite the volatility among equities.
Among U.S. hedge funds specializing in particular market sectors, Healthcare funds posted the strongest returns, averaging 5.2% net for the quarter. Media/Communication sector funds also were positive with a 2.3% net average gain. Technology funds averaged a ?1.7% net loss, over three percentage points better than the tech-heavy NASDAQ. Financial Services funds, however, were hit hard, averaging a ?8.4% net loss for first quarter 2002.
For March, the best performing strategies were U.S. Emerging Markets, U.S. Aggressive Growth, and U.S. Value/U.S. Several Strategies (tie), which had net returns of 4.7%, 3.9% and 3.8%, respectively. For first quarter 2002, U.S. Emerging Markets funds led with an average 9.2% net gain, followed by Heathcare sector funds and Offshore Emerging Markets funds, with average net returns of 5.2% and 5.0%, respectively.