Over the December, the Greenwich Global Hedge Fund Index, which includes 1,007 funds, returned 1.49 per cent, compared with the S&P 500's return of 15.79 per cent. The S&P 500 for 2006 was up 15.79 per cent.
Ben Rossman, general manager of the database and indexation group, said: "Hedge funds have been a consistent source of returns with significantly lower risk than that typically associated with equities.
"They have outperformed equities over the last five years, with about one-third the volatility. During this period the Greenwich Global Hedge Fund Index had annualized returns of +9.23 per cent with volatility of 4.6 per cent versus the S&P's annualized performance of +6.18 per cent with volatility of 12.4 per cent."
The Greenwich Investable Hedge Fund Index returned a 1.78 per cent gain in December, and was up 10.76 per cent over the year.
Mr Rossman said: "The Greenwich Investable Index continues to be the only investable hedge fund index that successfully tracks a published broad hedge fund benchmark.
"That is extremely important as more and more investors realize it is hard to beat the 'hedge fund market' and look to allocate to 'alternative beta'. With an annualized return difference of less than one percent, the Investable Index has performed the way we intended it to, closely tracking both the return and risk profile of the Greenwich Global Hedge Fund Index."