The average returns in 2004 were 7.7% for hedge funds, according to the Van Global Hedge Fund Index, with 1.5% returns seen in the final month of the year. In December, 84% of Van’s universe of hedge funds – about 800 in total – saw positive results.
Funds domiciled within the US saw better results on average, with 8.4% returns on the year. The Van Offshore hedge Fund Index saw returns of 7.1% in 2004.
All four of Van’s strategy groupings saw positive returns in 2004. Long/short performed the best at 8.7%, followed by special strategies (8.1%), market neutral (7.1%), and directional (5%). Long/short also saw the best December gains at 2%.
By individual strategy, distressed securities was the most profitable on the year at 18.2%. This was down from 2003, when 27.4% gains were seen with this strategy. Following this was emerging markets (13.3%) and value (11.6%). The worst strategy for the year was short selling, which lost 9.3% as the markets rose.
By arbitrage strategy, fixed income gained 5.8% on the year, while statistical arbitrage (3.2%), merger arbitrage (2.8%), and convertible arbitrage (1%) lagged behind.