Hedge fund managers are supposed to show skill during periods of higher risk and uncertainty. If there is more uncertainty or ambiguity concerning market, skill-based managers should be able to do better than those who just buy a market index. This is one key reason behind choosing hedge funds. When there is uncertainty and risk, alpha should be generated by skill managers.
December hedge fund returns were better across the board except for market neutral and fundamental growth strategies. With strong gains in small cap and value indices, the better equity strategy returns should be expected. The special situation, event, and distressed strategies again did well to cap a strong year. Macro, fixed income, and credit also performed well this month.
Nevertheless, the return numbers across most strategies for the year do not show strong performance. Assuming a lower beta and some alpha, most hedge funds should have been in the mid-single digits for returns. That was not the case for most strategies. Only two strategy indices generated gains greater than 10%. These two, event and distressed, are generally not tied to market moves in equities or fixed income.