The death of hedge funds has been greatly exaggerated.

Far too much has been made of the departures of such stars as Stan Druckenmiller of

Soros Fund Management

, Julian Robertson of

Tiger Management

and Stan Shopkorn of

Moore Capital

. (The Germans have a wonderful word for taking delight in other people's misery --

schadenfreude

. There's a lot of that on Wall Street.)

These guys did not "blow up." Druckenmiller,

et al.

, were only down 22% at the low. (And as reported here first, he will be back in business after Labor Day.) Tiger's performance did suck, but the reason Robertson "retired" is that he had wanted out for some time and could not find a buyer for Tiger at the price he wanted. And Shopkorn left over personal differences and compensation issues with boss Louis Bacon, not because he lost money.

Nor did their difficulties suggest that the days of the hedgies were over. They will never be. There will always be a demand for investment managers who can make money for customers in choppy markets.

And that is what has been happening this year. The unreported story in hedge-fund land this year is that most of these folks are making good money when the major indices are down.

That is confirmed not simply by chats with hedge fund managers. It was also the gist of a brief note today from

Van Hedge Fund Advisors International

, which has been tracking hedgies for potential customers since 1992.

As a group, hedge funds have earned 10.1% net of fees, says Van, which is darned good in a treacherous first half of the year that saw the

S&P 500 lose 0.4%, the

Nasdaq Composite give up 2.5% and the crusty old

Dow drop 8.4%.

June was especially good for these guys. The typical hedgie -- let's just stipulate such a mythical creature exists -- saw his or her portfolio rally 4.5%, says Van. "Over 79% of the funds reporting for our preliminary index generated positive returns in June."

Most importantly, a number of investing styles -- not just one -- have been working well. "Hedge funds specializing in aggressive growth, special situations and value investing are some of the early leaders," according to Van CEO Steven Lonsdorf. "In fact, these strategies comprise three quarters of the top 20 performing funds reporting thus far. Those top 20 funds produced an average June return of 17% net."

Plenty of Ways to Make Money

The point is that there is

not

just one way to make money in this market. Be an aggressive tech investor. Try bottom-fishing. Go for Old Economy value stocks. In short, be eclectic.

What does it mean to be eclectic today? It means you can own everything from

Tiffany

(TIF) - Get Report

to

JDS Uniphase

(JDSU)

, from

American General

(AGC)

to

Cadence

(CDN)

.

In fact, one hedge fund manager based in New York who is up almost 20% this year owns all of those stocks. Even in the darkest days of the second quarter, he was never in the red. In part, this was because he had shorts to offset some of his long exposure. (He is now 100% long and 50% short.)

His real secret is that he does not pigeonhole himself intellectually. He and his partner pride themselves on being neither "growth" managers nor "value" managers. They own both old and new economy companies. They are both long and short tech. They do whatever it takes to make the cash register ring.

"We have a variety of companies," he says. "In some, we pay more attention to valuation issues. In others, we are less concerned because that is not the key variable for success."

Coolly Handling the JDS Uniphase Maelstrom

Take JDS Uniphase, for example. This guy lightened up earlier in the year after the stock's huge run, but he hung onto part of the position. Why didn't he just bail?

"In companies like JDSU, the valuation metrics were always less important than the basic story -- a supplier of equipment to rebuild the entire communications systems of the world," he says. "We are still early in the cycle of the rebuild of the telecommunications system and on top of that we see a huge new application, the Internet, which will drive even more traffic onto these networks. The demand for the products and services of the suppliers to this market is not going to go away. This is a crucial spend for all companies and countries. I will keep some money on the table."

How can he afford to be so calm in the face of JDS' collapse this month? He owns a bunch of other stuff (see above). And he shorts other tech with inferior business models, by his lights, such as

Amazon.com

(AMZN) - Get Report

and

priceline.com

(PCLN)

. ("I'm short a bunch of Net stocks," he says.)

"The challenge in any investment long term is to know the two or three things that make the idea work or not," he says. "You can do all the research in the world and be perfectly wrong if you don't have some perspective that puts the company in the larger picture of the economy. You could have researched the hell out of horse-and-buggy companies just as the Model T was being rolled out."

"Here's a story," he says. "I remember going to see some company in Seattle a long time ago. I heard about some funny company coming public at some huge multiple of book value. I passed on it because it hardly had a book value. It was

Microsoft

. I passed on it without understanding the business, without understanding the cash flows Microsoft was going to generate."

A lot of value players ignore great tech companies. A lot of tech investors disdain Old Economy stocks. The message from this guy is, "Don't do either. Investing is all about the future return on capital. That is all that matters, and you can find it in more than one place."

The Edge

Individual investors may even have an edge in this regard.

You don't get measured every month by potentially disappointed clients. And you can extend your time horizon. If you buy high-quality business and dollar-cost average over time, you can afford to look through short-term market fluctuations. One or two companies may turn out to be dogs, but if you have a portfolio of 10 to 12 names, he says, you can do fine.