Hedge Funds Trail Stocks For Fifth Year With 7.4% Return

Bloomberg

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Hedge Funds
Hedge Funds

Hedge funds trailed the Standard & Poor's 500 Index for the fifth straight year as U.S. markets rallied to record levels.

Hedge funds returned an average of 7.4 percent in 2013, after a gain of less than 0.1 percent in December. The Bloomberg Hedge Funds Aggregate Index is down 1.8 percent from its July 2007 peak. The index is weighted by market capitalization and tracks 2,257 funds, 1,264 of which have reported returns for December.

Funds lagged behind the S&P 500 by 23 percentage points last year, the most since 2005, as the U.S. benchmark surged 30 percent for its best performance since 1997. Hedge funds fell short of investor expectations as clients targeted net returns of 9.2 percent from their investments in 2013, according to a Goldman Sachs Group Inc. 2013 investor survey. 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."

Multistrategy Gains

Multistrategy hedge funds increased 6.8 percent last year and 0.9 percent in December, according to data compiled by Bloomberg. Macro managers fell 2.2 percent in 2013 after rising 0.9 percent last month. Long-short equity funds, which bet on rising and falling stocks, rose 11 percent last year after posting a 1.1 percent December gain.

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

Funds run by Elliott Management Corp. and Bridgewater Associates LP posted yearly gains, while BlueCrest Capital Management LLP's BlueTrend strategy fell. Long-short equity and multistrategy managers reported average increases in 2013 and macro funds, which bet on broad macroeconomic themes, lost.

Elliott, Bridgewater

Elliott International rose 12 percent in 2013 after gaining 0.9 percent in December, according to a performance update obtained by Bloomberg News. Elliott, with $23.9 billion in assets, is run by Paul Singer.

Bridgewater, the $150 billion firm run by Ray Dalio, rose 5.3 percent in 2013 in its Pure Alpha II fund after falling 0.8 percent in December, according to a person familiar with the matter.

BlueTrend, BlueCrest's computer-driven hedge fund, fell 3.1 percent in December and declined 12 percent last year, according to a performance report obtained by Bloomberg News. BlueCrest was founded by Michael Platt.

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