Global bets sink hedge funds

Hedge funds barely clung to positive returns in January, and fell way behind the broad domestic equity markets, according to the latest report from Morningstar Inc. The Morningstar 100 Hedge fund Index gained 0.4% in January, while the Morningstar MSCI Hedge Fund Index gained 0.2%. The S&P 500 Index was up 2.4% in January. The report out today also showed that hedge funds tracked by Morningstar had net inflows of $1.9 billion in 2010, even though the funds also saw $628 million in net outflows in December. The bulk of the inflows last year went to global non-trend funds, while funds in the distressed securities, multi-strategy, global debt, and global equity categories experienced the largest outflows. The January index performance was held down by the global non-trend category, which fell by 2.4%. The global trend category, which trades futures on a momentum basis, fell by 1%. The best performing hedge fund category was U.S. equity, which gained 1.4%, while European equity gained 1% for the month. “Many hedge funds posted strong performance in January, but losses in global macro and trend-following strategies overshadowed any overall gains in the industry,” said Nadia Papagiannis, alternative investment strategist for Morningstar.