The number of single manager hedge funds coming to the retail market has slowed to a trickle, according to new research.

Just one new fund was rated in the Lonsec's 2010 Sector Review - Single Manager Hedge Funds compared to 10 funds last year.

"The dearth of new retail offerings is intertwined with the lack of retail inflows," said Lin Ngin, senior investment analyst at Lonsec.

"This sector is very prone to ‘flavour of the month' products, whether they be new managed futures products in 2009 or commodities based funds."

The report described retail inflows across the range of funds rated as flat however, fund managers have noted rising interest among institutional investors.

"Although we have seen signs of life in this sector, with $14 billion of inflows into the global hedge fund industry in the [first quarter] of 2010, this is still substantially lower than the $111 billion per annum in inflows from 2002 - 2007."

Lonsec's review covered 16 funds. Four received the firm's ‘highly recommended' rating including the BlackRock Scientific Global Markets fund, Aspect Diversified Futures fund, Man AHL Alpha and Winton Global Alpha fund.

The AQR Delta fund was added to the ‘recommended' list.

"The distribution of ratings in the 2010 review has a distinct positive skew due to our focus on reviewing a selective list of high quality offerings, rather than just rating a large number of products," said Ngin.

Australian Fund Monitors found the local hedge fund sector outperformed the ASX 200 by over 10 per cent for the year to June to lose just under 1 per cent.

The research found the best performing fund returned over 40 per cent for the year to date while the worst performing fund lost over 35 per cent.