Hedge funds gained 1.88% in October as better-than-expected US economic data and a near resolution to the eurozone crisis boosted the markets.

Positive performance
Hedge funds had their strongest month this year, gaining 1.88% in October as optimistic sentiment returned and markets rallied. The MSCI World Index gained 8.62% as the eurozone crisis looked near to a resolution and US economic data was better than expected. Early reports indicate net positive asset flows to hedge funds during the month.

Long/short equity funds gained 4.1% in October, their largest increase since May 2009. All regional mandates finished the month in positive territory; managers investing in Eastern Europe and Russia had the largest gains (6.36%) and as European economies moved to recapitalise their banks, emerging markets across the region benefited from improved sentiment. The Eurekahedge European Hedge Fund Index also performed well in October, gaining 2.83%.

Distressed debt has top gains
Hedge funds investing in riskier assets had the largest gains during October – distressed debt managers benefited, gaining 3.56%. Arbitrage strategies had modest gains of 1.5% during the month.

CTA/managed futures were down 1.84%, consistent with the year to date performance, which has seen the Eurekahedge CTA/Managed Futures Hedge Fund Index fall 3.6%. Short-term systematic traders lost the most in October. Strategies investing in equity index futures had strong gains, however. Managers with exposures to metals (base and precious) and oil also had gains.

Multi-strategy performs in-line with market
Multi-strategy funds had gains of 1.88% in October, in line with the overall gains posted by hedge funds during the month.

Relative value strategies also performed reasonably well, with gains of 1.64% during the month.

Global macro was only up 0.11% for the month, with its performance in the year to the end of October in negative territory at -1.97%. Managers with a tilt towards commodities or equities benefited little from the market rally.

Fixed income sees inflows
A surge in risk appetite during October boosted US corporate credit markets. The high yield bond sector had strong inflows, sending the Bank of America Merrill Lynch High Yield index up 5.96% for the month. The Eurekahedge Fixed Income Hedge Fund Index was up 1.29% during October and 1.8% in the year to the end of the month.

Event driven strategies also performed well. The Eurekahedge Event Driven Hedge Fund Index gained 2.54%, although year to date the strategies have not performed as well, losing 4.36%.