Hedge funds largely outperformed the underlying markets in October, with the Eurekahedge Hedge Fund Index down by a marginal 0.3%1 during the month as opposed to larger decreases seen in the markets globally – the MSCI World Index lost 1.85% through October. The modest performance by hedge funds was seen in the face of a mixed month for most asset classes, as equities and commodities performed strongly earlier in the month but lost value towards the end, while the trend was the opposite for bonds and the US dollar. However, the month was significant, as it brought to an end the longest run of back-to-back positive returns since 2007. The Eurekahedge Hedge Fund Index gained for seven consecutive months from March to September, bringing the October YTD returns to 16.1% – the best first ten-month of returns since October 2003.
Most observers had been predicting a market correction in the run up to October amid speculation that the strong rallies seen in the underlying markets were not supported by economic fundamentals. Although October initially witnessed a continuation of the strong market risk appetite, declines in US consumer spending, weaker housing and manufacturing data contributed to a turnaround in investor confidence, leading to sharp declines in most market indices.
