If hedge fund investors in 2017 can learn anything from 2016, it's that not all funds are created equal.
Though hedge fund returns again fell short of some popular market benchmarks, the year featured some standout performance from various strategies. Risk drove returns, a strategy that could be a winner again in a year where volatility is expected to increase.
Activist investors and those focused on rescuing troubled companies both beat the S&P 500 for the year. Event-driven strategies also performed relatively well, narrowly missing the benchmark, while credit strategies also presented solidly positive returns, according to firms that track hedge fund performance.
As an industry, the HFRI Fund Weighted Composite Index returned 5.6 percent. In a year that featured record redemptions and miserable performance by a few high-profile names, industry spokesmen focused on the positive.
"Following a disappointing decline in 2015, hedge fund performance in 2016 was the highest since 2013 and not only tops indices of global equities, but also the annualized HFRI performance over the last five and 10 years," said Kenneth Heinz, president of HFR. "The recent (post-election) increase in investor risk tolerance is likely to drive continued performance and capital gains into mid-2017."
HFR's index of distressed-focused funds returned 13.4 percent for the year. Event-driven strategies as a whole returned 10.2 percent. That compares with the S&P 500, which posted a price gain just shy of 10 percent.