The hedge fund industry had a bumper September, with a 3.04 per cent monthly return, according to the Credit Suisse/ Tremont hedge fund index, bringing year to date performance of the index to 14.97 per cent.

Every strategy in the index posted a positive performance except dedicated short bias, which performed badly due to the bull market.

Emerging market managers showed the strongest performance, with the Credit Suisse/Tremont hedge fund emerging markets index posting a 4.94 per cent monthly return. However the hedge fund index did not outperform the market as represented by the MSCI EM index, which returned 8.9 per cent for the month.

Within emerging market fund managers, globally focused managers performed the best, followed by managers focused on Latin America. According to the report, managers see Latin America as a strong growth area in the long term but are also wary of historically high valuations for the region. Both Asian focused and Eastern Europe focused funds in the index had positive performances.

In other sectors, the equity market neutral index posted a positive return of 0.96 per cent, the event driven index returned 2.89 per cent and the fixed income arbitrage index made a return of 2.77 per cent.

The Credit Suisse/Tremont hedge fund index global macros produced a monthly positive return of 2.77 per cent. Currency trading was mainly profitable for macro managers, who opted for short-dollar biases versus emerging market and commodity currencies.

Long/short equity managers experienced another positive month, with many equity markets around the world rallying. The hedge fund index long/short equity saw a monthly return of 3.23 per cent. Over the past months many fund managers increased their exposure to equities and benefitted from the market’s performance. Long books outperformed losses on shorts in a month that is historically bad for equities.

Regionally, European equity funds had the best month, followed by global and US orientated funds. Japanese managers had a mixed performance, with Japanese equities falling for the first time in seven months.

Hedge fund managers continue to be split on expectations about future inflation or deflation, causing rallies in commodities on the one hand and longer term treasuries on the other. Meanwhile rallies continue in equities demonstrating the unusual conditions in the market for all these asset classes to rally together. Analysts and economists put this down to the volume of liquidity being pumped into the financial markets.