Hedge fund performance rose for the second consecutive month in April but still lagged stock market performance, according to data from Hennessee Group LLC.

The Hennessee Hedge Fund Index rose 3.8% in April, bringing the year-to-date gain to 5%.

For hedge funds, the increase marks a further rebound from their worst year in 2008.

"April continued to be a challenging environment for hedge funds, as the market rally was driven by short covering and momentum, rather than changes in fundamentals," said Charles Gradante, a co-founder of Hennessee Group.

The firm's Convertible Arbitrage Index rose 15% and continues to be a top performer this year. The Long/Short Equity Index gained 3.7% during the first quarter, helped by a stock market rally. The Arbitrage/Event Driven Index rose 4.2% last month, with managers optimistic about credit opportunities including bank debt, high-yield and convertible bonds. Those investments did well in April as spreads tightened "significantly," Hennessee Group said.

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