The start of the final quarter of the year produced mixed results for hedge funds as the US election loomed over the horizon, figures show.

Hedge funds delivered a mixed set of returns as the fourth quarter of this year began, against a background of uncertainty ahead of the 8 November US elections, new figures showed this week.

Rising market uncertainty resulted in a divergence between top hedge fund firms, which produced strong gains, and smaller firms, which suffered declines, according to Hedge Fund Research, the Chicago-headquartered firm tracking the industry.

The HFRI Asset Weighted Composite Index posted a gain of 0.6 per cent for October, driven by strong returns in leading macro funds, while the HFRI Fund Weighted Composite Index fell by 0.6 per cent for the month, bringing the Index value to 12,722.

The report said that October represents the fourth consecutive monthly gain for the HFRI Asset Weighted Composite Index and the largest since the AWC Index gained 1.4 per cent in July. October was also the first monthly decline for the HFRI FWC since February, paring the year-to-date gain to 3.6 per cent. 

Despite the decline, the HFRI FWC outperformed both US and global equities by 120 and 140 basis points, respectively, in October. This expanded the YTD performance differential over global equities to approximately 180 basis points and narrowed the YTD differential to US equities to 230 basis points, HFR said.

Macro hedge funds experienced a wide performance differential by firm size in October, as commodities fell and the dollar gained. The HFRI Macro Index surged 1.3 per cent, the strongest monthly gain since November 2015, driven by falling investor risk tolerance, uncertainty over the US election, and expectations for near-term interest rate increases.

The equally-weighted HFRI Macro (Total) Index declined 1.5 per cent for the month, the third consecutive monthly decline, paring YTD performance to a gain of 0.2 per cent. 

Trend-following strategies posted a sharp decline concentrated in fixed income and commodity metals, with the HFRI Macro: Systematic Diversified Index falling 2.9 per cent, dropping YTD performance to 1.9 per cent. Offsetting CTA losses, the HFRI Macro: Discretionary Thematic Index advanced 1.2 per cent, though both the HFRI Currency Index and HFRI Commodity Index posted narrow losses. Led by regional exposures to MENA and Latin America, the HFRI Emerging Markets (Total) Index added 1.5 per cent for the month, increasing YTD performance to 9.6 per cent.

Fixed income-based Relative Value Arbitrage (RVA) strategies posted gains in October as M&A activity surged. The HFRI Relative Value (Total) Index advanced 0.2 per cent for the month, the eighth consecutive monthly gain, bringing YTD performance to 6.0 per cent.

Event-driven strategies also posted gains for the month, as M&A activity surged on announcements about AT&T/Time Warner and GE/Baker Hughes transactions; gains were offset by volatility in widely-held shareholder activist positions. The HFRI Event-Driven (Total) Index posted a narrow gain of 0.04 per cent in October, as this strategy continues to lead all strategies YTD with a 6.8 per cent return.