Hedge Funds

Hedge funds are beating the market for the first time in 10 years

Key Points
  • Hedge funds are up about 0.4 percent this year through April, beating the S&P 500, which posted a decline of about 0.4 percent.
  • That's the first time the $3.2 trillion industry has beaten stocks since the financial crisis.
  • Increased volatility along with rising energy prices and well-placed bets in the bond market have keyed the outperformance, according to industry tracker HFR.
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After nearly a decade of underperformance, hedge funds are actually faring better than the stock market in 2018.

Thanks to higher volatility, the rally in energy prices and some well-placed bets in fixed income, managers in the $3.2 trillion hedge fund industry posted a 0.38 percent gain in April that brings the total return for the year to 0.39 percent, according to industry tracker HFR.

The HFRI Fund Weighted Composite Index finished April narrowly ahead of the , which posted a loss, including dividends, of 0.38 percent through the first four months.

Though the overall hedge fund performance was muted and the beat narrow, it was the first time the industry has outperformed the basic stock market index since 2008. In that instance, both hedge funds and stocks got clobbered, but the former's loss of 19.03 percent wasn't as dramatic as the 37 percent decline in equities during the worst of the financial crisis.

The biggest contributors to this year's run have been health-care and technology stocks, which combined have netted a 4.54 percent gain, the fixed income-asset backed strategies, with a 3.12 percent gain, and active trading, which has produced a 3.12 percent return.

In April, though, the big mover was energy and basic materials, which easily outdistanced other indexes with a 4.46 percent gain, according to HFR.

"The industry continues the process of evolving transitional politics and economics creating long and short opportunities across a wide continuum of specialized exposures and industries, including Fixed Income/interest rate-sensitive equities, retail, M&A, technology and blockchain," HFR President Kenneth J. Heinz said in a statement. "This powerful process is likely to continue to drive performance through mid-2018."

Energy gains have been driven by a rise in oil prices. The sector is up 1.5 percent year to date in the S&P 500, trailing the HFR Energy/Basic Materials Index, which has gained 2.31 percent.

Cryptocurrencies also have been strong performers for hedge managers.

The HFRI Blockchain Composite Index has tumbled 19.3 percent year to date but jumped 47.1 percent in April as prices for bitcoin and other cryptos rose. Similarly, the HFRI Cryptocurrency Index is off 17.5 percent in 2018 but surged 48.5 percent in April.

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