Hedge funds declined 1.4% in October as sharp losses in technology and artificial intelligence-related equities weighed on equity and macro strategies, while activist and fixed income managers delivered positive returns, according to new data from HFR.

The HFRI Fund Weighted Composite Index fell an estimated 1.4% during the month, with approximately 60% of hedge funds recording losses. Equity hedge strategies were among the worst affected, declining 2.4%, led by fundamental growth funds, which lost 5.6%, and technology-focused managers, which fell 4.8%.

Macro strategies also struggled amid heightened geopolitical uncertainty and volatile commodity markets. The HFRI Macro Index declined 1%, with discretionary thematic managers losing 3.2% and commodity-focused funds falling 1.9%. Systematic diversified and CTA strategies proved more resilient, recording a marginal 0.1% decline.

Event-driven strategies fell 0.2% overall, although activist hedge funds gained 3.6% and merger arbitrage managers advanced 0.1%. Credit arbitrage and distressed debt strategies declined 2.7% and 1.8%, respectively, reflecting broader pressure across credit markets.

Fixed income strategies provided some of the strongest returns, helping the HFRI Relative Value Index gain 0.2%. Sovereign fixed income managers advanced 5.3%, while yield alternatives and asset-backed fixed income strategies returned 4.6% and 2.1%, respectively.

Performance dispersion widened significantly, with the top decile of hedge funds gaining an average of 7.7% in October, compared with a 13.2% decline among the bottom decile. The resulting 20.9 percentage-point spread was substantially wider than September's 14.6 percentage points, highlighting the divergence between managers during the market disruption.

HFR president Kenneth Heinz warned that policy changes following the Democratic Party's victory in the US midterm elections could prolong market volatility, with AI regulation, data centre development, tariffs, interest rates and the Iran conflict among the key factors expected to influence hedge fund positioning over the coming quarters.