Hedge fund total returns stood at 2.54 per cent in July, taking the performance so far this year to 9.9 per cent, according to revised data from the Credit Suisse/Tremont Hedge Fund Index.

The performance is the best year-to-date track record since July 1998, Credit Suisse/Tremont said.

The strong results by many hedge fund categories this year contrasts with the industry’s worst-ever performance last year, when funds on average lost about 19 per cent, although they fell by far less than global equity markets as a whole.

Hedge fund managers traditionally have prided themselves on an ability to make money in all market conditions, although the sector has at times been criticised for not providing much additional value over and above simply tracking a market index and amplifying returns with leverage rather than particular investment skill.

By far the strongest hedge fund category was the convertible arbitrage sector, with returns of 31.14 per cent, fuelled by heavy issuance of convertible bonds by firms struggling to raise money in other ways, and hence creating big arbitrage opportunities for funds operating in this sector.

Other notably strong sectors were emerging markets funds, with year-to-date gains of 17.54 per cent, and dedicated short-bias, at 17.28 per cent.

By comparison, the Dow Jones World Index of equities showed total returns of 16.87 per cent.