November marked the Dow Jones Credit Suisse Hedge Fund Index’s first negative month of performance since June.

Many managers focused on preserving capital in the increasingly volatile market environment by constraining their losses with hedges, curtailing exposures and lowering leverage levels.

Five out of ten strategies in the index posted positive performance for the month.

Fixed income arbitrage (+0.74 per cent) was the best performing sector in November, and has the best year-to-date performance in the index at 11.82 per cent as of 30 November. The strategy has had only one month of negative performance in 2010 in May, and was positive every month in 2009. Mortgage-focused managers have been among the best performers in the sector in 2010, and continued to find profitable trades in November.

Long/short equity was the second best performing sector in the index, returning 0.46 per cent. Despite the challenging macro issues driving markets, intra-equity index correlations dropped, allowing for greater dispersion at the stock level. As a result, many managers were able to differentiate themselves from the market and stock picking on both the long and short sides was a driver of returns.

In a reversal from their index-leading performance in October, managed futures funds finished down 4.11 per cent for November. Losses were generally the result of mid-month trend reversals in currency and fixed income markets which negatively affected many trend-following managers.