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Hedge Funds Just Had Their Best Year Since 2010

  • Long Short Equity funds led the pack in 2017 performance
  • December Marked 14th Straight Month of Gains, Most Since 2000

Hedge funds gained 9.03 percent last year, the best annual performance since a 9.75 percent gain in 2010, led by Long Short Equity funds, and buoyed by the second-longest bull market in the U.S. Last year, 42 percent of all funds notched double-digit gains -- the most since since 2013 -- and more than double the 17 percent that reported negative returns.

December’s average gain of 1.24 percent resulted in the 14th consecutive month of advances, the longest winning streak since the dot-com bubble topped out in March 2000.

Strategies in 2017:

Bloomberg’s Equity Hedge fund universe led 2017’s performance across hedge fund strategies, climbing 14.26 percent, with Long Short Equity and Long Biased funds being the largest constituents. 

Long Short Equity (L/S) funds jumped 14.92 percent to their best year since 2013, when they added 20.33 percent. Roughly 54 percent of L/S Equity funds in Bloomberg’s hedge fund database posted double digit returns. Asian-focused Long Short equity funds climbed 24.09 percent, the best performance by region and almost twice the 14.26 percent gain for Global Funds.

Event Driven funds posted the second-best performance by strategy, with a gain of 7.78 percent, followed by Fixed Income Directional funds, which increased 6.20 percent.

Sectors:

Healthcare and Tech funds led 2017 sector performance, posting total return gains of 27.75 percent and 13.2 percent, respectively. Tech stocks, which made up 23.76 percent of the S&P 500 at yearend, contributed about 37 percent to the S&P’s 2017 total return, including reinvested dividends, of 21.82 percent.

Regional:

European-focused funds came in at 9.13 percent, while the Stoxx 600 was up 26.78 percent; Asia-focused funds had a strong year, surging 22.67 percent vs up 32.17 percent for the MSCI AC Asia Pacific (MXAP), and many have recovered from 2016 and 2015, when the average fund was down 0.83 percent and up 4.64 percent, respectively.

Helped by European performance as well as increased M&A activity (below), Event-Driven funds advanced 7.78 percent.

Although, collectively, hedge funds put up less than half the S&P 500 return in 2017, that was better than recent history. The last time they came anywhere close to performing in line with the market was in 2013, when they put up only a quarter of the S&P 500 return, 7.80 percent versus 32.37 percent for the index.

  • NOTE: All data are total return including reinvested dividends; December data are the most recent available; January numbers become available around 2/15/2018
  • NOTE: "Equity Hedge" refers to a Bloomberg-created term for strategies where the largest subset of funds is L/S Equity and Long Biased hedge funds
  • NOTE: All results other than total fund and strategy level results are for funds that have reported through December
  • RELATED: Dec. 22, Stocks May Get Hedge Funds to First Double-Digit Gain Since 2010

— With assistance by Maria Didorenko, Colleen McElroy, and Brian Pennisi

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