For many purposes, I'm not a fan of grouping things or people together to draw inference about the group. Such shortcuts often lead people astray. As I said in The Illusion of Asymmetric Insight, people like to form groups. They may pick a group/team/tribe and sometimes follow it blindly. Their illusion of asymmetric insight is that they believe they know more about the group than they do, or they know more than the group knows about them. So, investors group different investment programs into a category and speak of them broadly. If they like hedge funds, invest in hedge funds or manage a hedge fund, they'll probably speak of the group positively. If they don't like hedge funds, don't understand hedge funds, don't know much about hedge funds, or don't have enough money to qualify, they'll probably group them together with a negative perception. Since perception is a filtering process that selects information for conscious processing, your perception is a function of your own beliefs, wisdom, and experience. At the end of the day, I guess the best measure of your perception is your actual results. If you invest in or manage a hedge fund and have a good performance history over a meaningful period, then your perception has been useful to you. If you have earned a poor track record, then it doesn't really matter what you like or don't: you may consider that your perception may be may be off.

As an asset manager that specializes in quantitative research and trading systems, I necessarily want to quantify things. If we want to get an idea of the performance history of a group or groups, we necessarily need to put them in a basket and call them a category. In this case, we are doing it on purpose with the awareness that we are. 

In Stock Index Performance for 2011 and the Full Market Cycle we looked at the results for the broad stock indices in 2011. More importantly for 2011 we examined the path they took from January 1st to December 31st. Even more important than an arbitrary calendar year performance we looked at them over a complete market cycle of the past 5 or so years. Here, we view a snapshot of the Barclay Hedge Fund Indices. As you can see, Barclay Hedge Fund Indices include a broad index "Barclay Hedge Fund Index" that groups the performance of a broad range of hedge funds into one index. The definition from their website: 

The Barclay Hedge Fund Index is a measure of the average return of all hedge funds (excepting Funds of Funds) in the Barclay database. The index is simply the arithmetic average of the net returns of all the funds that have reported that month.

If we use the Barclay Hedge Fund Index to measure the overall performance of hedge funds in 2011, they were down -5.2%. What would be far more telling is the experience along the way, which is beyond the scope of this post about the overall 2011 results of different hedge fund groups. It is useful to glimpse at these hedge fund indices to get a general perception of the results of different forms of active management, active trading, etc. However, keep in mind one calendar year is a meaningless time frame unless you were trading your way to a new car, boat, home, etc. and December 31, 2011 was your deadline. Overall, we can probably say that hedge funds results were a little negative for 2011. 

Source: BarclayHedge.com 

The far more meaningful use of performance history is to gain an understanding about the experience one would have over a longer period of time. Specifically, a study of both the upside and the downside as discussed in The Asymmetry™ Ratio: The Asymmetric Investment Return Profile of Risk vs. Reward. And, for those investors who don't have unlimited resources, a special emphasis may be placed on the historical draw-down. 

Definitions for Selected Indices:

Barclay Equity Long Bias Index: Equity Long/Short managers are typically considered long-biased when the average net long exposure of their portfolio is greater than 30%.

Barclay Equity Long/Short Index: This directional strategy involves equity-oriented investing on both the long and short sides of the market. The objective is not to be market neutral. Managers have the ability to shift from value to growth, from small to medium to large capitalization stocks, and from a net long position to a net short position. Managers may use futures and options to hedge. The focus may be regional or sector specific.

Barclay Global Macro Index: Global Macro managers carry long and short positions in any of the world's major capital or derivative markets. These positions reflect their views on overall market direction as influenced by major economic trends and or events. The portfolios of these funds can include stocks, bonds, currencies, and commodities in the form of cash or derivatives instruments. Most funds invest globally in both developed and emerging markets.

Barclay Multi Strategy Index: Multi-Strategy funds are characterized by their ability to dynamically allocate capital among strategies falling within several traditional hedge fund disciplines. The use of many strategies, and the ability to reallocate capital between them in response to market opportunities, means that such funds are not easily assigned to any traditional category.