This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The Hedge Fund Report: Trading to a Major Quarter

Hedge fund returns generally outran the broader market last month, and many strategies had similarly strong results for the first quarter as well.

"Hedge funds continue to outperform the S&P 500 index, with technology, Asia-Pacific and Europe leading the way," said E. Lee Hennessee, managing principal of Hennessee Group. The Hennessee Hedge Fund Index rose 1.64% in March and 5.76% for the first quarter, beating both the S&P 500's 1.25% return in March and 4.21% return in the first quarter.

Hedge funds also outperformed the Dow Jones Industrial Average, which rose 1.05% in March and 3.65% in the first quarter.

One solid performer was the equity long/short sector. The good performance of stocks in the January-to-March period helped managers who maintained a long bias and who bought energy and technology names. The HFN long/short equity average was up 2.63% in March and 7.02% for the quarter. Many hedge fund managers rotated from bonds to equity in late winter and benefited from a strong run in small-cap stocks.

"Hedge funds are chasing small-caps. They are much more short-term focused and they are going after something that is working right now," said Jack Ablin, chief information officer of Harris Private Bank.

Trading strategies that try to profit from corporate news flow also posted fairly good results. The S&P Event-Driven Index gained 1.40% during March due to a favorable environment for merger and buyout activity.

With private equity and hedge funds competing against one another in the space, deal sizes increased, helping to raise the multiples on several potential takeover targets, said Charles Davidson, senior hedge fund analyst at S&P. Managed futures also did well, with a 3.95% gain last month, according to S&P, reflecting strong trends in equities and commodities.

Perhaps the most notable result is the spectacular recovery of the convertible arbitrage sector, which is finally showing signs of life after several years of bad performance. After posting a 1.6% return in March, according to HFR, the strategy realized a 5% gain during the first quarter, its best performance in five years.

The last time convertible arbitrage showed similar quarterly results was in the first quarter of 2001, with a 6.2% gain. One factor behind the recovery was the improvement in corporate bond markets. During the quarter, high-yield and investment-grade spreads compressed, helping managers with long bond positions, according to Citigroup.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,067.56 -30.89 -0.18%
S&P 500 2,002.28 -1.09 -0.05%
NASDAQ 4,598.1880 +17.9170 0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs