The Morningstar 1000 Hedge Fund Index fell 0.1% in the first quarter, and the Morningstar MSCI Asset-Weighted Hedge Fund Composite Index rose 0.5%.

In March, while equity mutual funds surged, hedge funds failed to take the same advantage, with the 1000 Hedge Fund Index rising 2.1% in the month, and the asset-weighted index increasing 0.1%.

However, emerging markets hedge funds rose sharply in March, surpassing equity markets around the world; the Morningstar MSCI Emerging Markets Index and Morningstar Emerging Markets Hedge Fund Index rose 4.2% and 6.2%, respectively.

“In March, we saw a recovery in equity and some credit markets, which helped hedge funds post small gains. But many hedge fund managers, believing that the economy is not yet out of hot water, continued to remain cautious, and were not strongly positioned to participate in the market rally,” said Nadia Papagiannis, a hedge fund analyst with Morningstar.

On the other hand, the Morningstar Corporate Actions Hedge Fund Index, which includes funds that attempt to profit from mergers and acquisitions, IPOs, spin-offs and capital restructure, increased 2.2% in March and 3.4% in the quarter. Deals from bankruptcies led the strength, particularly in March in the U.S. and Japan.

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