Hedge funds gained 1.63 per cent in December, according to the Barclay Hedge Fund Index compiled by BarclayHedge.

The index had positive returns in 10 out of 12 months in 2012, and was up 8.27 per cent at year-end.

“Buoyant equity markets at the beginning of the month collided with fiscal cliff fears at mid-month, only to explode higher on 31 December,” says Sol Waksman, founder and president of BarclayHedge.

The Barclay Pacific Rim Equities Index was up 3.17 per cent in December, emerging markets gained 2.87 per cent, European equities were up 2.24 per cent, equity long bias gained 2.04 per cent, and distressed securities added 1.95 per cent.

“Hedge fund returns outpaced the S&P 500 for a third consecutive month in December, but stilled lagged by 7.76 percent at year-end,” says Waksman.

Three of Barclay’s 18 hedge fund strategies lost ground in December. The Equity Short Bias Index dropped 5.97 per cent, technology lost 0.33 per cent, and equity market neutral slipped 0.06 per cent.

The Healthcare & Biotechnology Index led all hedge fund strategies in 2012 with a 13.79 per cent gain, distressed securities gained 12.05 per cent, the European Equities Index was up 10.17 per cent, emerging markets added 9.94 per cent, equity long bias was up 9.34 per cent, and fixed income arbitrage gained 9.33 per cent.

“Now that the boomer generation has begun to swell the ranks of senior citizens and Obamacare is the law of the land, the outlook for healthcare and biotech appears to be bullish,” says Waksman.

The Equity Short Bias Index was the only losing hedge fund strategy in 2012, suffering a negative return of 24.18 per cent. This is the biggest one-year loss for equity short bias since BarclayHedge began tracking its performance in 1997. The previous record was a 23.95 per cent loss in 2003.

The Barclay Fund of Funds Index gained 1.05 per cent in December, and was up 4.60 per cent in 2012.