Hedge funds enjoyed soaring profits in the first three months of 2021, following record gains in 2020, as they were able to dodge several high-profile obstacles including the squeeze from retail investors over GameStop shares and the collapse of distressed hedge fund Archegos Capital Management.

Funds achieved gains of almost 6% between January and March, according to data from HFM, pushing the annual return of the funds tracked in its global index above 30%, one of the strongest performances on record.

January to March proved the strongest first quarter for hedge funds since before the 2008 financial crisis, according to recent data from Hedge Fund Research (HFR).

Funds made gains of 6.1% in the first three months of the year, despite increased volatility in global stock markets during the period.

Recent strong performance by hedge funds has been driven by their exposure to out of favour stocks, HFR found, while they have also benefited from investors’ optimism about the impact of economic reopening after Covid.

More exposure to cryptocurrencies, which have soared to a series of record highs since January has also helped, along with more Covid stimulus spending.

The success of Covid vaccine rollouts around the world is expected to be a key factor in whether fund managers can find investment opportunities as economies emerge from lockdown.

Investors continued to pour money into funds during the first quarter, according to HFM, a trend which is expected to continue.

Hedge fund managers, who sometimes pick individual stocks which they expect to rise or fall, rather than following stock market indices, have been caught out in recent months by coordinated action against them from smaller investors.

Wall Street hedge fund Melvin Capital Management had shorted the stock of video game retailer GameStop, betting its share price would fall. A group of users of the online forum Reddit worked to drive up GameStop’s price, leading Melvin to pull out of the stock in January after heavy losses.