Equity hedge funds generate strong gains in September

There have been a growing number of articles on hedge fund outflows and poor performance. This should not be surprising given the year to date performance of many hedge fund strategies; nevertheless, September was a good month for equity hedge fund strategies. Given the good September performance for small cap, growth, and value indices, this should not be a complete surprise. A simple comparison shows the HFR indices outpacing the major equity style indices for the month. There were good alpha opportunities for hedge funds. The biggest losers were global macro and managed futures managers who were not able to take advantage of central bank actions or macro themes. The focused attention on central bank announcements has been a negative for macro traders over the last quarter.

The year to date HFR index returns show event and distressed strategies continuing to do well, but the market directional index now also generates good gains. However, the market directional index still lags behind the major style beta indices. At the same time, the equity market neutral and fundamental growth strategies have posted the worst returns. As we enter the fourth quarter, hedge funds need to show significant improvement to meet investor expectations.