After suffering one of their worse quarters for some time in Q4 2018, hedge funds enjoyed a reversal of fortunes in Q1 of this year. The asset class returned 5.4 percent during the period, wiping out the 4.8 percent losses in had suffered at the end of 2018, the worse quarter for hedge funds in over a decade.

However, according to alternative asset information provider Preqin, while all strategies have entered Q2 in positive territory, the differing performance between strategies on a monthly basis highlights the need for investors to continue to diversify portfolios by strategy, region and exposure.

For example CTAs, which had arguably the most difficult 2018, started slowly in 2019 (-0.14 percent in January 2019), but ended on a high with a March return of +2.12%. In contrast, equity strategies hit the ground running this year, with a January return of 4.46 percent, and ended with a March return of just 0.69%.

Preqin expects both volatility to continue and is also pencilling in another market correction. The firm also found that investors may not be putting as much new capital into hedge funds as they did in the early part of the decade.

However, it also said in a statement that it continues to see high levels of activity among institutional investors as they become increasingly bearish and redeem and replace funds in their portfolios. This represents a challenge for hedge fund managers, retaining clients and dealing with less than ideal market conditions.

It seems that investor appetite for hedge funds is still there given the 69 fund launches in Q1. Preqin has noticed a spike in the proportion of funds coming to market that pursue a relative value strategy.

Amy Bensted, head of hedge fund research at Preqin, said in a statement:  “It seems managers are perceiving greater opportunities to generate alpha through relative value strategies than directional investments in the volatile and potentially disrupted markets of 2018.”