Hedge Funds Start Year to the Upside

Hedge funds began to compensate for a dismal performance in 2008 by starting off the new year with heady gains, according to two research groups.

Hedge Fund Research reported on Friday that its composite hedge-fund index rose 0.39% in January, while Hennessee Group said Monday that its hedge-fund index was up a sharper 1.1%. When compared with broad market indices, like the S&P 500's and Dow Jones Industrial Average's 9% declines, hedge funds outperformed by about 10 percentage points.

The strongest gains last month were made by investing in the bond markets, shorting the equity markets, or using arbitrage strategies to benefit from market dislocations. Those that added to positions with bank debt or high-yield credit did particularly well, as high-yield bonds gained 5.8% and leveraged loans rose 6.9%. ...