Developed market equity, macroeconomic trend funds lag; commodity, emerging markets, U.S. stocks lead the gainers.
For some equity funds and those betting on macroeconomic trends, which together make up a large chunk of the $3 trillion global hedge fund industry's assets, 2016 has been another year to forget.
Beset by investors pressing for lower fees and the dulling effect of central bank easy monetary policies, the biggest winners were largely to be found betting on credit, a rebound in commodity, energy and emerging markets or the election-fuelled run-up in U.S. stocks.
Those coming off worse included London-based Crispin Odey, whose Odey European fund was down around 50 percent by early December, and U.S.-based Passport Capital's John Burbank, whose Special Opportunities fund was down 24 percent heading into November.
The average diversified global equity fund had lost 4.8 percent to early December, data from HSBC showed, while those focused on Europe had lost 4.7 percent.
The average so-called 'global macro' fund, which looks to pick big macroeconomic trades right, was up just 1.8 percent, the data showed, while 'Systematic Global' funds, which use computer programmes to help trade, were down 2 percent.
At the top of the performance charts were some of the laggards from recent years, including the U.S.-based Dorset Energy Fund, whose bets on energy companies helped it rise nearly 80 percent, buoyed by a 40 percent-plus jump in the price of crude oil.
The equity-focused Russian Prosperity Fund was up nearly 55 percent, helped by gains of more than a fifth in the oil-exporting country
's main stock market.
That left the average hedge fund of any stripe up 3.5 percent by mid-December, data from industry tracker Eurekahedge showed, lagging a 4.5 percent gain in the MSCI World Index.
Against that tough backdrop, the number of active funds dipped below 10,000 for the first time since 2014, and the overall average management fee charged as a percentage of assets under management fell to 1.5 percent, industry tracker HFR said.
More than half of the world's hedge funds employed an equity or event-driven hedge fund strategy, HFR said.
"Overall it has been a challenging year for hedge funds due to a lack of net asset inflows into the industry and difficult performance results," said Zeynep Meric-Smith, Co-Lead for UK Hedge Funds at EY.
Martin Kallstrom, head of alternative investments at First Swedish National Pension Fund, which invests around $1.7 billion in hedge funds, said that had led some managers to be "quite humbled", leading to a substantial reduction in fees.
"In some cases we have negotiated up to a 20 percent reduction in fees this year," he said.
A steepening of the U.S. yield curve, greater reliance on fiscal spend and the prospect of lighter regulation and corporate friendly tax policies from President-elect Donald Trump could lend support to many stock and bond funds in 2017.
"With central bank policy in the States at least looking to normalise, (and) company fundamentals becoming more important after the rising tide of cheap money that lifted all boats, fundamental stock-picking will have more value," said Simon Smiles, chief investment officer for ultra high net worth investors at UBS Wealth Management.
Others likely to benefit include fixed income, as investors are rewarded more for investing in riskier credits, and event-driven funds, which could profit if Trump allows companies to more easily repatriate earnings from overseas.
"Irrespective of what the specific outcome is, there will be movement on the regulatory and political front post-Trump's victory," he said, pointing to the potential healthcare stock-boosting repeal of 'Obamacare', changes to rules limiting bank trading or those around energy regulation.
"These are all events that can confuse the market and create uncertainty and provide a ripe hunting ground for hedge funds," he added.
BETTING ON DECLINE
Among the best-performing equity 'short' trades in 2016, where a manager bets on the price falling, were in small healthcare and biotech stocks, including Concordia International in the United States and Circassia Pharmaceuticals in Britain, data from Markit (MRKT)
With the U.S. Federal Reserve flagging a quicker pace of interest rate rises and the European Central Bank set to trim its bond purchases against a backdrop of fresh political risk in Europe, funds betting on divergent macroeconomic themes could also benefit.
"More limited central bank appetite for QE [quantitative easing] could take away a significant element of market support," said Anthony Lawler, head of portfolio management at hedge fund investor GAM.
"An increasing range of economic outcomes and higher yields provide more fertile trading conditions for active managers, which we believe should prove beneficial across asset classes."
Reporting by Simon Jessop