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5 Hedge Funds' Top Stocks Soar After 2011 Rout (Update 2)

(Adds that Harbinger Capital is a big buyer of shares of Spectrum Brands Holdings.)

BOSTON (TheStreet) -- Hedge funds, coming off their second-worst year in two decades, are on the rebound this year, but they're still trailing the broader market.

Hennessee Group, a hedge fund adviser, said its composite index of hedge fund performance gained 2.5% in January, versus a gain of 4.4% for the S&P 500 Index of the largest U.S. companies.

 

That comes after a disappointing 2011 for most hedge funds, which control about $2 trillion in assets. As a group, they lost 5% in 2011, while the S&P 500 was flat. Equity hedge funds lost 8.3%, and macro funds, which have a wide array of holdings, dropped 3.8%, and event-driven funds declined 2.8%.

Nevertheless, as a group they still saw inflows of $28 billion, according to another industry analyst, Hedge Fund Research.

Hedge funds of all kinds had about $70 billion in inflows last year, with the bulk of it going to fixed-income investments, a trend that is indicative of investors' defensive positioning last year.

Hedge funds turned risk-averse last year as they tried to minimize losses, as the ongoing European sovereign debt crisis and a weak U.S. economy resulted in a pullback by investors worldwide. That sort of allocation may have hurt many funds' returns in January.

Hedge funds are typically a portfolio allocation used by institutional investors and wealthy individuals to maximize returns. The can invest in stocks, currencies, commodities, strategic acquisitions, and fixed-income securities, depending on their goals.

But some funds may have been positioned for a rally late last year that didn't come.

Charles Gradante, of the hedge fund advisory firm Hennessee Group, said "the top-performing managers were positioned for a January rally and were long stocks that underperformed in 2011."

But that was "after several months of treading water," he said, and managers were relieved to see that stocks "rallied on fundamentals, being driven less by macroeconomic and political news and more by underlying company-specific fundamentals."

Hedge funds' Securities and Exchange Commission quarterly 13F filings are due next week, and they will disclose what investments caused last year's disappointing performance for some, and what they are buying going into what is expected to be a rebound.

Some fund managers have already disclosed some of their top holdings either in letters to investors or at conferences.

Typically, for some of the bigger hedge funds, managers are trying to use their leverage as stakeholders to unseat current management or get their own representatives on company boards. According to their view, that's to enhance shareholder value so some managers use their shareholder letters to take potshots at companies that are in their crosshairs.

Here are five hedge funds that have disclosed what their investment focus is now:

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