Hedge funds retreated 1.13 per cent in May versus the previous month as measured by the Barclay Hedge Fund Index, although the index remains up 1.87 per cent year-on-year.

The US-based fund tracker and analyst BarclayHedge said 13 of its 18 hedge fund indices were down in May from April, while five held their ground or advanced. The Emerging Markets Index took the biggest hit, losing 4.08 per cent in one month.

“After eight months of steady gains, the Barclay Hedge Fund Index fell back in May,” says Sol Waksman, founder and president of BarclayHedge. “Continuing turmoil in the Middle East, tightening in China, eurozone concerns and the US debt ceiling debate all contributed to investor jitters and a resultant flight from risk assets.”

Waksman said emerging market equities were hit particularly hard because of the combined effects of the slowing US recovery and a sharp sell-off in commodities.

Among the indices tracked by BarclayHedge, the Equity Long Bias Index lost 1.70 per cent, Pacific Rim Equities lost 1.40 per cent, Global Macro was down 1.04 per cent, and the Multi Strategy Index dropped 0.64 per cent.

On the positive side, said the firm, Equity Short Bias reversed eight straight months of losses with a 2.02 per cent gain.

“The decline in both US and international stock markets gave Equity Short Bias a boost in May, while sending most other equity indices downward,” says Waksman.

In terms of sectors, healthcare and biotechnology was up 1.57 per cent – the sector has gained 8.66 per cent in the first five months of 2011 - Fixed Income Arbitrage gained 0.47 per cent, and the Merger Arbitrage Index was up 0.39 per cent.

Finally, the Barclay Fund of Funds Index dropped 1.15 per cent in May, but remains up 0.78 per cent for the year, said BarclayHedge.