April 9 (Bloomberg) -- Hedge funds returned an average 1.3 percent in March, trailing the 7.2 percent advance in global stocks, according to Eurekahedge Pte.

The Eurekahedge Hedge Fund Index tracking more than 2,000 funds worldwide has returned 0.8 percent this year, according to a preliminary report by the research firm, based on 31 percent of the funds reporting performances for March. In February, the index fell 0.8 percent after adding 0.3 percent in January.

Funds investing in Eastern Europe and Russia were the best- performers in March, surging 14.4 percent, Singapore-based Eurekahedge said. The six other regional indexes also advanced as the MSCI World Index, tracking 1,678 stocks globally, jumped 7.2 percent, completing the best month since April 2003.

“It’s becoming easier for hedge-fund managers to find opportunities for making money,” said Hideki Hashiguchi, chairman of the Japan chapter of the Alternative Investment Management Association in Tokyo. “Hedge funds are still underperforming benchmarks such as the MSCI because that they are still recovering from the problems they faced in the past four to five months.”

Hedge funds, mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall, are outperforming the global benchmarks this year, after suffering their worst year on record in 2008 through market losses and client withdrawals.

Quarterly Performance

The industry shrank more than 20 percent to $1.5 trillion at the end of December, from a peak of $1.9 trillion in 2008, as the global hedge-fund index slid 12 percent, the most since Eurekahedge first published the figures in 2000.

Hedge funds benefited this year as investors speculated governments worldwide will succeed in ending the global recession and financial crisis. The administration of President Barack Obama announced plans to rid banks of toxic assets, while the Federal Reserve joined central banks from the U.K. to Switzerland and Japan in buying bonds to help drive down interest rates and increase the flow of credit.

For the quarter, 96 percent of all the reporting funds outperformed the MSCI World Index’s 12.5 percent drop, Eurekahedge said, without giving further details.

Redemptions eased from February, totaling $7 billion in March, or about 0.5 percent of the entire industry, Eurekahedge said, without giving a comparative figure.

Relative Value

Eight of nine Eurekahedge measures tracking different hedge-fund strategies rose. The index tracking commodity trading advisers, which rely on computers to decide when to buy and sell securities, fell 2 percent.

Managers employing relative-value methods that take advantage of mismatches in the price or spread of various securities were the best performers, returning 4.3 percent, Eurekahedge said.

The index tracking so-called long-short equity funds, which bet on rising and falling stock prices, climbed 2.5 percent, as did the gauge measuring managers investing in fixed income, the report shows.

Eurekahedge plans to release a full report next week.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net

Last Updated: April 8, 2009 21:25 EDT