The Morningstar MSCI Composite Hedge Fund Index ended October up 4 per cent year-on-year, but fell 0.8 per cent in the month, with an overall mixed picture for the hedge fund industry.

The Morningstar MSCI Systematic Trading Hedge Fund Index, which includes hedge funds that profit from price trends in the futures market, fell almost 4 per cent in October - the worst monthly performance since March 2003.

“Hedge funds were a mixed bag in October, as managed futures strategies performed particularly poorly, but international equity-focused and short-biased funds posted gains on average,” said Nadia Papagiannis, director of alternative fund research.

Morningstar said price reversals in a number of commodities including precious metals, natural gas and wheat hurt many trend-following hedge fund strategies.

The S&P 500 and Russell 2000 indexes declined 1.9 per cent and 2.2 per cent respectively, while short-biased hedged funds profited and long-biased equity hedge funds "successfully defended against the market turbulence," Morningstar said.

Meanwhile, the Morningstar MSCI North America and the Equity Hedge Fund indexes inched up slightly at 0.01 and 0.2 per cent respectively. The Morningstar MSCI Short Bias All Size Hedge Fund Index rose 3.1 per cent.

In September, single-manager hedge funds in Morningstar's hedge fund database posted $1.1 billion in outflows. The global macro category experienced the heaviest redemptions among all single-manager categories, losing $546 million. Debt arbitrage strategies and long-only debt strategies logged inflows of $147 million and $194 million respectively.

October returns for the Morningstar MSCI hedge fund indexes and September asset flows are based on funds that reported as of November 12.