October was a tough month for investors across asset classes and industries, yet weighed most heavily on some of the recent years' best performers, such as tech and consumer investors, and hedge funds. According to industry tracker eVestment, hedge funds suffered their second-worst month since 2011 in October, dragging the industry into negative territory year-to-date (YTD). 

October Hedge Fund Performance Beat S&P, Yet Trails Equities YTD

"The search for bright spots in the industry was difficult in October as almost every hedge fund primary market and primary strategy fell into the red for the month, although many are still in positive territory YTD. October’s fund performance and resulting impact on YTD performance are in stark contrast to the largely positive results hedge funds saw in 2017 and 2016," read the report. 

Hedge fund returns dipped 3.1% last month, with equity funds underperforming with an average loss of 4.3%, followed by derivatives which dipped 3.7% and broad multi-market managers, which incurred an average loss of about 2.5%. The only subgroup to post a positive return in October was foreign exchange/currency, which gained approximately 1% to bring YTD performance to 1.8%. 

According to eVestment, "size seemed to play a role in returns in October," wherein the 10 largest hedge funds saw among the least red ink and secured an average YTD return at 1.2%. Additionally, firms focused on India, China and Russia continued their downward trajectory, while hedge funds focused on Brazil jumped 13% last month, bringing their YTD gain to 0.8%. 

As for primary strategies, the worst performing last month was activist funds, with a 5.8% loss in October and a 6.9% decline YTD. The best performing primary strategy this year has been distressed and multi-strategy credit hedge funds, up 3.8% and 2.9% respectively in 2018, yet both posted negative returns in October. 

As terrible as last month was for hedge fund managers, the industry actually outperformed the broader equity market, as the S&P 500 fell 6.9%. 

Overall, hedge funds are now at a loss of 2.6% for 2018, compared to a 2.1% return for the S&P 500, a 4.4% rise for the tech-heavy Nasdaq Composite Index, and a 2.5% increase for the 30-member Dow Jones Industrial Average (DJIA) index.