Hedge funds in April suffered their first average loss in 17 months, dropping 0.58%, according to a widely followed index of major funds.
Although these largely unregulated funds are supposed to make money in down markets as well as up ones, the 1.57% April drop by the benchmark
index was mirrored in declines by a broad range of hedge fund strategies. The average hedge fund is now up 2.82% through the end of April, comfortably outpacing the S&P, which gained 0.1% in the same period.
The average fund last posted a loss in October 2002, with an average decline of 1.35%, according to Tremont Capital Management, the Rye, N.Y., investment and consulting firm.
Only short-bias funds enjoyed April, picking up an average return of 4.23%, giving them a year-to-date return of 0.14%. Paul McEntire, whose Skye Short Selling fund operates from Redwood City, Calif., said astute short-sellers had plenty of options in the technology sector.
"The Nasdaq has overall had quite a nice run for quite a long time now," he said. "There were a lot of companies that were maybe getting ahead of themselves a bit in terms of their price vs. actual financial performance."
The bounce in April follows a rough year for short-selling funds, which posted an average loss of 32.59% in 2003.
"We did have a miserable year last year," said Lee Mikels, manager of the Kodiak Fund. "But last year, I think the bullish side was way overblown, and I think we've probably seen a peak in earnings. It's our suspicion that the economy started to put its brakes on right here."
Fixed-income arbitrage funds also had a solid April, with an average return of 1.34%.
Most other categories tracked by the index returned less than 1% for the month or posted sizable losses.
The average commodity trading hedge fund lost 6.46% on energy and commodity prices swings, all but erasing the gains of the preceding three months. The average commodity fund return through April was 0.2%.
Emerging market funds, the strongest-performing category in the index during March, lost 3.34% in April, bringing the average year-to-date return down to 2.36%.
Equity long-short hedge funds lost 1.4% in April, but the average fund is still up 2.53% for the first four months of the year.