NEW YORK (HedgeWorld.com)–Hedge funds returned 14.7% in 2003 following strong returns of 1.8% in December, according to preliminary results for the MSCI Hedge Fund Composite Index.

Just about all MSCI hedge fund categories, called process groups, performed well in 2003 with arbitrage, merger arbitrage and statistical arbitrage funds being the exception. Those funds, collectively called relative value funds by MSCI, returned 6.7% in 2003 and were up just 0.3% in December.

The best performing MSCI process group index in 2003 was the MSCI Specialist Credit Index, which returned 23.4%. That index, composed of distressed, long/short credit and private placement funds, returned 2.2% in December, while November’s final returns were 1.5%. (Preliminary November returns were 1.3%.)

The MSCI Security Selection Index also did well in 2003, producing a return of 19%. That index, which contains long/short equity, market neutral equity and short-biased equity, returned 1.9% in December.

MSCI’s Multi-Process Group Index, which is made up of event-driven and multi-process funds, returned 18.1% in 2003 and 1.9% in December.

MSCI’s category for futures funds and global macro funds, the MSCI Directional Trading Index, returned 10.6% in 2003 and 2.9% in December. The category’s November returns were revised last month to negative 0.3% from negative 0.4%.

The positive hedge fund performance came amid resurgent equity markets worldwide. The Standard & Poor’s 500 stock index returned 28.68% in 2003 and 5.24% in December. In the same respective periods, the MSCI World Equity Index returned 30.9% and 6.2% and the MSCI World Sovereign Debt Index returned 15% and 3.9%.

PBarr@HedgeWorld.com