Key Takeaways
- • Long/short equity dominated 2013 hedge fund returns, averaging 17.7% gains—more than double the 2012 performance of 8.2% and the strongest showing for any strategy since convertible arbitrage's 2009 performance peak, according to Boomerang Capital's Periodic Table of Hedge Fund Returns.
- • Distressed securities finished second with 16% average returns, down from its 2012 leading position of 11.8%, while multi-strategy funds delivered flat year-over-year performance at 11.2% for both 2012 and 2013.
- • Emerging markets strategies disappointed despite strong early-year momentum, posting 4% gains through mid-March before deteriorating throughout 2013 to finish at 8.8% average returns, with the subsequent emerging markets sell-off cited as a contributor to early 2014 market declines.
- • Short-bias funds suffered severe losses for the fourth consecutive year of underperformance, declining 24.9% in 2013 following a 20.4% drawdown in 2012, 22.5% in 2010, and 25% in 2009—highlighting the structural challenge short-focused strategies face in sustained bull markets, though these funds provided portfolio protection in 2008 and 2011.
- • Managed futures strategies posted modest declines of 2.6%, representing marginal improvement over 2012 performance, indicating continued headwinds for trend-following systematic strategies.
Summary
Long/short equity strategies decisively outperformed the broader hedge fund landscape in 2013, generating average returns of 17.7% for calendar-year investors according to Boomerang Capital's analysis. This performance marked a dramatic resurgence for the strategy, more than doubling the preceding year's 8.2% average return and representing the strongest showing across any hedge fund strategy since convertible arbitrage's exceptional 2009 performance. The strategy's success reflected managers' ability to capitalize on directional equity market movements throughout a year marked by sustained global stock market appreciation.
Distressed securities claimed the second position with 16% average returns, reversing its 2012 leadership when the strategy posted 11.8% gains. Multi-strategy funds maintained consistent performance, delivering 11.2% average returns in both 2012 and 2013, underscoring the stability of diversified hedge fund approaches. The data, compiled by Boomerang Capital using Credit Suisse index data through December 2013, ranks strategies by total returns and provides institutional investors with a comprehensive view of relative hedge fund performance dynamics.
Emerging markets strategies experienced a dramatic performance arc throughout 2013, starting strong with 4% gains through mid-March before deteriorating significantly in subsequent months. The strategy ultimately finished the year at 8.8% average returns, a middle-of-the-pack result that disappointed relative to early-year momentum. The subsequent unwinding of emerging markets positions is cited as a contributing factor to market declines observed in early 2014, highlighting the interconnected nature of hedge fund capital flows and broader market volatility.
On the performance spectrum's lower end, short-bias funds continued their multi-year struggle in a persistently rising equity environment. These funds posted an average loss of 24.9% in 2013, following consecutive annual drawdowns of 20.4% in 2012, 22.5% in 2010, and 25% in 2009. This four-year trajectory underscores the structural challenge short-focused strategies encounter during extended bull markets. However, the data illustrates these funds' historical value as portfolio hedges, demonstrating gains of 14.9% in 2008 and 3.8% in 2011 when equity markets faced significant headwinds.
Managed futures strategies reported an average decline of 2.6% in 2013, representing marginal improvement over 2012 performance but reflecting continued challenges facing systematic, trend-following investment approaches in volatile and range-bound market conditions.
Distressed securities claimed the second position with 16% average returns, reversing its 2012 leadership when the strategy posted 11.8% gains. Multi-strategy funds maintained consistent performance, delivering 11.2% average returns in both 2012 and 2013, underscoring the stability of diversified hedge fund approaches. The data, compiled by Boomerang Capital using Credit Suisse index data through December 2013, ranks strategies by total returns and provides institutional investors with a comprehensive view of relative hedge fund performance dynamics.
Emerging markets strategies experienced a dramatic performance arc throughout 2013, starting strong with 4% gains through mid-March before deteriorating significantly in subsequent months. The strategy ultimately finished the year at 8.8% average returns, a middle-of-the-pack result that disappointed relative to early-year momentum. The subsequent unwinding of emerging markets positions is cited as a contributing factor to market declines observed in early 2014, highlighting the interconnected nature of hedge fund capital flows and broader market volatility.
On the performance spectrum's lower end, short-bias funds continued their multi-year struggle in a persistently rising equity environment. These funds posted an average loss of 24.9% in 2013, following consecutive annual drawdowns of 20.4% in 2012, 22.5% in 2010, and 25% in 2009. This four-year trajectory underscores the structural challenge short-focused strategies encounter during extended bull markets. However, the data illustrates these funds' historical value as portfolio hedges, demonstrating gains of 14.9% in 2008 and 3.8% in 2011 when equity markets faced significant headwinds.
Managed futures strategies reported an average decline of 2.6% in 2013, representing marginal improvement over 2012 performance but reflecting continued challenges facing systematic, trend-following investment approaches in volatile and range-bound market conditions.
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