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Market Extra: Hedge funds had their best year since 2009 but still can’t keep up with the stock market

Hedge fund managers couldn't keep up with broader measures of stock-market performance, even in the most unsettled markets in a long time. Read More...

Hedge funds had their best year in over a decade in 2020, but still lagged broader measures of stock-market performance, according to a report published Tuesday.

The Eurekahedge Hedge Fund Index gained 11.77% for the full year, the industry group said. That compares to an 18.4% return for the S&P 500 SPX, -0.66% and a 44.92% gain for the technology-oriented Nasdaq Composite COMP, -1.25% index. Eurekahedge’s North American index also fell short, gaining 14.82%.

Hedge funds using a tail risk strategy did best in 2020, returning 32.23%, followed by long volatility strategies, which rose 23.57%.

Read next: This chart shows investors’ tectonic shift away from stock pickers

As many market-watchers have noted, if ever there was a moment for active managers to shine, it should have been 2020, with its once-in-a-generation market upheaval. In fact, 2020 did mark something of an improvement for hedge funds: in 2019, they returned a woeful 8.9%, compared to the S&P 500’s 28.9%.

And some active managers made 2020 work for them. The Ark Innovation ETF ARKK, -2.99%, the flagship exchange-traded fund run by Cathie Wood’s company, gained 152.82% last year.

But the winning streak for passively-managed strategies compared to expensive active managers has been intact for some time. 2020 was the best year for hedge funds since 2009, when they returned 21.22%, Eurekahedge said. That year, the S&P 500 gained 26.46%.

Read next: The years-long shift from active to passive is still going, and Dan Draper has a front-row seat for it all

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