The Markets April 17, 2007

Hedge Funds Beat S&P and MSCI in First Quarter

Hedge funds posted 2.10% returns for the first quarter, outperforming the S&P 500 and the MSCI World Index, according to research from Morningstar, Inc.
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According to the research firm, most of the hedge fund gains came in January, with a return of 1.15%. In February and March, the funds had returns of 0.52% and .54%, respectively.
The top performing funds were convertible arbitrage funds and emerging market funds. According to Morningstar, the arbitrage fund category had 4.67% in gains, benefiting from increased volatility during the quarter as well as high levels of convertible bond issuance.
Emerging markets funds returned an average of 5.50%, with China funds leading the pack.
Developed-market equity hedge funds also performed well, with commodity (primarily energy), Europe, and Japan funds taking the lead and the equity net long and equity variable categories brought in 2.28% and 3.57%, respectively.
Hedge funds in distressed companies returned 4.15% in the first three months of the year. Event-driven and merger-arbitrage funds had a good showing as well, picking up 4.21% and 2.88%, respectively.
Some of the poor performers in the first quarter were equity net neutral funds, Global macro funds, and managed futures, according to Morningstar.

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