Q1 was the worst quarter for stock-picking alpha in at least seven years. According to Morgan Stanley analyst John Schlegel, most hedge funds lagged their respective equity market indices last quarter.

Morgan Stanley’s data show that hedge funds generated an average return of about 1.9 percent in March and are now down about 0.9 percent year-to-date. The MSCI AC World Index is up 0.4 percent year-to-date.

American Equity L/S funds have performed particularly poorly in 2016. Even after averaging a 2.1 percent gain in March, these funds remain down 2.9 percent in 2016 versus a 0.5 percent gain for the S&P 500.

“Across regions, there appears to be a consistent trend of elevated interest for low net and/or market neutral managers as well as those that are able to generate alpha on the short side,” Schlegel noted.

In March, hedge funds were…

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