The global hedge funds industry once again proved to be a good investment have after the Hennessee Hedge Fund Index advanced 1.30% in April (4.61% YTD), while the S&P 500 rose 1.48% (6.42% YTD), the Dow Jones Industrial Average advanced 1.40% (+5.57% YTD), and the NASDAQ Composite Index advanced 2.64% (8.46% YTD) during the same period. Bonds advanced, as the Barclays Aggregate Bond Index increased 1.04% (2.84% YTD) and the Merrill Lynch High Yield Master II Index increased 2.24% (7.17% YTD) in April.

However, Charles Gradante, co-founder of Hennessee Group said the 'May 6th rout' which saw shares across Europe and Wall Street plunging on concerns over the Greece debt default crisis, is causing some concerns among investors and fund managers.

Gradante said: "While fundamentals, such as corporate earnings and economic data, have been surprisingly good in the first quarter, the market technicals after the 'May 6th rout', including support levels and moving day averages, are creating significant concern among hedge fund managers. The question is if this is a good entry point for bulls, or if this is just the beginning of a whole lot of pain. Most feel it is too early to tell and are operating with caution."

"Hedge funds have underperformed during the first four months of 2010, but I think that is expected," said Lee Hennessee , Managing Principal of Hennessee Group . "The market has experienced strong beta-driven rallies, especially in March, and it is common for hedge funds to lag. The short portfolios of hedge funds have been a major detractor from performance. Despite that fact, managers see elevated risk in the market, and are willing to sacrifice upside participation for down side protection. That should have served them well during the first week of May."

The Hennessee Long/Short Equity Index advanced +1.43% in April (+4.59% YTD). Despite a late month sell-off due to growing sovereign debt concerns and the SEC's civil suit against Goldman Sachs, the equity markets finished the month of April higher. Small cap stocks continued to lead the equity markets higher with the Russell 2000 Index jumping +5.59%; the index is now up a strong +14.58% for the year. Seven out of ten sectors were positive for the month, led by consumer discretionary (+6.0%) and energy (+4.4%), while the more defensive sectors continued to lag, namely health care (-3.9%) and consumer staples (-1.6%). Long/short equity funds slightly underperformed on a relative basis during the month due to their defensive posturing. Despite improving near term sentiment due to impressive earnings numbers and improving economic data, long/short equity fund managers remain cautious as they see numerous headwinds for both the economy and financial markets, particularly in the second half of the year, and will therefore continue to sell into any equity market strength to further reduce net long exposures. In addition, they will continue to emphasize fundamental, bottom-up stock selection as they strongly believe the market will shift from a low quality, beta driven market to one rewarding large cap, high quality stocks with sustainable earnings.

"Shorting has been extremely challenging this year. Many hedge funds have actually generated negative alpha on their shorts (meaning that their shorts are going up more than the market)," commented Gradante . "Funds have significant short exposure in high beta, low quality stocks, which have outperformed in this rally. Many funds have been badly burned on short bets in regional banks (+42% YTD) and REITs (+19% YTD), as these stocks continue to rally despite deteriorating fundamentals and significant headwinds."