Hedge fund returns generally outran the broader market last month, and many strategies had similarly strong results for the first quarter as well. "Hedge funds continue to outperform the S&P 500 index, with technology, Asia-Pacific and Europe leading the way," said E. Lee Hennessee, managing principal of Hennessee Group. The Hennessee Hedge Fund Index rose 1.64% in March and 5.76% for the first quarter, beating both the S&P 500's 1.25% return in March and 4.21% return in the first quarter. Hedge funds also outperformed the Dow Jones Industrial Average, which rose 1.05% in March and 3.65% in the first quarter. One solid performer was the equity long/short sector. The good performance of stocks in the January-to-March period helped managers who maintained a long bias and who bought energy and technology names. The HFN long/short equity average was up 2.63% in March and 7.02% for the quarter. Many hedge fund managers rotated from bonds to equity in late winter and benefited from a strong run in small-cap stocks. "Hedge funds are chasing small-caps. They are much more short-term focused and they are going after something that is working right now," said Jack Ablin, chief information officer of Harris Private Bank. Trading strategies that try to profit from corporate news flow also posted fairly good results. The S&P Event-Driven Index gained 1.40% during March due to a favorable environment for merger and buyout activity. With private equity and hedge funds competing against one another in the space, deal sizes increased, helping to raise the multiples on several potential takeover targets, said Charles Davidson, senior hedge fund analyst at S&P. Managed futures also did well, with a 3.95% gain last month, according to S&P, reflecting strong trends in equities and commodities. Perhaps the most notable result is the spectacular recovery of the convertible arbitrage sector, which is finally showing signs of life after several years of bad performance. After posting a 1.6% return in March, according to HFR, the strategy realized a 5% gain during the first quarter, its best performance in five years. The last time convertible arbitrage showed similar quarterly results was in the first quarter of 2001, with a 6.2% gain. One factor behind the recovery was the improvement in corporate bond markets. During the quarter, high-yield and investment-grade spreads compressed, helping managers with long bond positions, according to Citigroup.