Hedge Funds and Stock Indexes

Hedge Funds Beat Stock Indexes in the Last Decade

Hedge funds not only beat equities indexes by a significant margin in the last decade but also did so with less volatility.  This is an encouraging statistic for managers trying to restore investors' confidence following 2008's poor hedge fund performances.  The Hennessee Group, which issued the report showing how hedge funds have outperformed stock indexes in the last year, reports that its hedge fund index has rose 88% from 2000 through 2009 which stock indexes have sunk by as much as 44% in the Nasdaq Composite.

Tuesday, Hennessee Group said its hedge-fund index rose 88% from 2000 through 2009, compared with a 9.3% decline in the Dow Jones Industrial Average, a 23% fall in the Standard & Poor's 500-stock index and a 44% plunge in the Nasdaq Composite. The Hennessee Hedge Fund Index had only two down years—2002 and 2008—while the S&P 500 fell in 2000 and 2001, in addition to those.

The Hennessee data show that in months the S&P 500 gained in value, hedge funds captured about half of the upside, while in months the index fell, hedge funds posted only about a fifth of the decline.

The top-performing investment funds over the past decade were those that focused on financial equities, health care and biotechnology, and distressed assets. Financial funds performed well in 2008, as they foresaw many of the financial problems and generated gains by betting against stocks. These funds also did well in 2009, participating in a sharp rebound among those stocks.  Source

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