Financial services hedge funds were among the poorest performers in January while other funds rebounded from last year's lackluster returns, according to a well-known hedge consultant.

Financial hedge funds eked out a 0.51% net return in January, compared with a 4.89% return for technology hedge funds and a 12.3% return for communications hedge funds, said George P. Van, a consultant who heads Van Hedge Fund Advisors International Inc., Nashville.

The results are a far cry from the glory days. "Financial services hedge funds were the king of the heap for five years," Mr. Van said.

The biggest reason is that bank and other financial institution stocks have struggled as investors worry about earnings, the economy, and interest rates.

Indeed, the languishing bank sector could slow the creation of other such hedge funds as investors hunt for greener pastures elsewhere, hedge fund consultants said.

"More managers may start opening technology hedge funds as opposed to financial services hedge funds," said Charles J. Gradante, chief investment officer of the Hennessee Hedge Fund Advisory Group, New York. "Managers heading up financial services hedge funds have had a tough time."

Still, several bank hedge funds recently debuted, including Pilot Financial, a global financial services fund launched by Robert B. Albertson, a former Goldman, Sachs & Co. bank research director.

Volatile financial markets and the stigma of Long-Term Capital Management LP, a major hedge fund that was bailed out with the help of the Federal Reserve and several banks, helped damage the returns of most hedge funds last year.

"The first month of 1999 marked a return to normalcy in the hedge fund world," Mr. Van said. But not for financial hedge funds.

In fact, hedge funds that invested in financial services did worse in January than the average equity mutual fund, which returned 1.6%, according to data compiled by Van Hedge Fund Advisors.

The only category of hedge funds to perform worse in the month were those focused exclusively on short-selling.

The swoon in bank stocks hurt many financial services hedge funds, but created opportunities for other hedge funds, Mr. Van said. Though financial services hedge funds are suffering, low valuations of banks are "screaming buying opportunities to many value funds."

And in spite of the uncertainty, bank stocks continue to offer upside potential, Mr. Gradante said.

"This is not a bad time to get into financial equities," he said. "Interest rates are favorable and consolidation is still not over. So there is going to be a lot of action."

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