Equity Hedge Funds Post Best Start to Year Since 2013 Amid Rally

(Bloomberg) -- Equity hedge funds are getting a pick-me-up after a harsh 2016, when they suffered almost a third of the industry's withdrawals, amid a global stock rally.

The long-short strategy returned 3.2 percent in the first quarter on an asset-weighted basis, marking the best start to a year since 2013, according to Hedge Fund Research Inc. The strategy was the top performer over the period, with the average hedge fund returning 2.3 percent, on a fund-weighted basis.

Managers benefited from a surge in equity markets in Europe, the U.S. and emerging markets in the quarter after growing their net long exposure to those markets, according to prime brokerage data. While sustained gains are vulnerable to risks including the presidential election in France, challenges to U.S. President Donald Trump's policy plans and rising interest rates, they also provide a chance to make money, according to Man FRM, a unit of Man Group Plc that invests in hedge funds.

“There is a pleasing array of sources of macroeconomic risk and potential opportunity for hedge funds,” Man FRM wrote in a note on April 4. “Trading any one of these successfully is rightly difficult (we don't pay hedge fund fees for nothing), but at least this year there appears to be enough breadth of opportunity for hedge funds to potentially prove their worth."

U.S. stocks jumped in the first quarter, with the S&P 500 Index returning 6.1 percent, while the 16 major currencies tracked by Bloomberg all rallied against the dollar. Investment-grade dollar bonds rose 0.8 percent and junk bonds jumped 2.7 percent, according to Bloomberg Barclays U.S. indexes.

To contact the reporter on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Vincent Bielski