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Hedge Fund Winning Streak Ends in April

It is the first time in 17 months that the average fund has lost money.

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

S&P 500

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."

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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.