You would not think some hedge funds would be down so significantly for September returns given that the major stock index (SPX) moved higher, but upheaval in small cap, value and growth harmed the average equity hedge fund. There were some positive gains in relative value managers, but it was a generally a tough month for those trying to actively find returns.

With a quarter to go in 2018, there will have to be more aggressive risk-taking to get hedge fund managers in the black. While the average hedge fund may be dong better than long bond funds, most investors did not buy hedge funds as bond substitute but as alpha generators. Research on money managers show a change in behavior in the last months of the year based on relative performance. Winners will take risk off the table and losers may push their risk exposure.