Hedge funds gain in first-quarter, but lag broader market-data

BOSTON Mon Apr 9, 2012 6:01pm EDT

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BOSTON (Reuters) - Hedge funds posted their strongest start to the year since 2006 but still trailed the stock market's surge, largely because many managers began the new year with a more timidly positioned portfolio, data released on Monday show.

The average hedge fund gained 4.94 percent during the first three months of 2011, according to Hedge Fund Research (HFR). The Hennessee Group reported that hedge funds gained 4.6 percent during the quarter when the Standard & Poor's 500 index climbed 12 percent.

In March the HFRI Fund Weighted Composite Index of more than 2,000 funds had a 0.01 percent loss, after gaining 2.12 percent in February and 2.78 percent in January, HFR said.

"Hedge funds posted their best first quarter since 2006 but lagged equity markets as managers were conservatively positioned," said Charles Gradante, managing principal of New York-based industry consultants Hennessee Group.

Hedge funds, unlike mutual funds, do not disclose their monthly or quarterly numbers to the public leaving research companies like HFR and Hennessee to piece together industry trends based on data collected from managers anonymously.

So after having suffered a disappointing year in 2011, many managers were unwilling to bet that Europe had completely solved its debt problems or that the U.S. economy would rebound strongly, making for conservatively positioned funds, analysts said. Indeed only a few prominent hedge fund managers reported very strong first quarter results.

"The challenge for hedge funds is participating in the upside of the rally without getting caught with too much exposure if the markets have a sharp reversal," Gradante said.

Funds that bet on technology and healthcare stocks gained 6.75 percent during the quarter, but funds that bet exclusively that stocks would fall - so called short-sellers - lost 10.25 percent, HFR data show.

(Reporting By Svea Herbst-Bayliss)

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