Hedge funds rose for the fifth consecutive month in July, returning an average 3.31 per cent for the month as stocks gained worldwide, Australian Fund Monitors (AFM) said.
Hedge funds have still lost 3.3 per cent for the 12 months to July, outperforming the S&P/ASX 200 Accumulation Index's 14.73 per cent fall in the same period.
"Reviewing managers' monthly performance reports has revealed a strong view that while they have enjoyed the market's newfound confidence, many are of the opinion that it may have built in more forward earnings improvement than it should have," AFM chief executive Chris Gosselin said.
"Although the general opinion is that we may have seen the worst, few are discounting the possibility that there may be a prolonged period where the market moves broadly sidewards."
Liquid hedge fund strategies including global macro and equity long/short registered modest gains in July and were among the top performers in the 12-month period.
The Blue Sky World Fund, Platinum Japan Fund - AUD and BlackRock Asset Allocation Alpha Fund (Class D) jumped 61.08 per cent, 35.07 per cent and 33.57 per cent respectively in the 12 months. They were the top three single manager funds.
The Zone Capital Trading Trust 1 and Macquarie High Alpha Commodities advanced 20.94 per cent and 9.01 per cent respectively in the 12 months to become the best managed futures products.
Among fund of hedge funds, the Access SRA Fund - SRA 16 Portfolio and APAM Absolute Equity - Asia Fund surged 40.83 per cent and 32.21 per cent respectively to become the top two performers.
The BT Total Return Fund and HFA International Shares Fund (Wholesale) rose 2.98 per cent and 1.92 per cent respectively.
The Select Alternatives Portfolio and Everest Absolute Return Fund II lost 11.84 per cent and 15.26 per cent in the year to July.
While many hedge funds have produced solid gains, it's important to remember that some have merely rebounded from a very low base after being battered during the financial crisis, Gosselin said.
AFM covers 220 hedge funds.
