Hedge funds fell 0.5 percent on average in October, the industry's first loss in five months, hedge fund tracking data published on Wednesday showed.
Funds lost money last month as the S&P 500 sank 2 percent.
Still, the benchmark S&P 500 Index had risen as much as 16.55 percent this year as of Sept. 14, when it reached its 2012 closing high of 1,465.77.
Hedge funds have gained only 4.3 percent on average this year, according to Cambridge, Massachusetts-based Hedge Fund Research.
Positive performance among hedge fund managers that use Relative Value Arbitrage, Equity Hedge and Event Driven strategies did not offset the losses suffered by macro-focused hedge funds, HFR data showed.
Fixed Income Asset Backed hedge funds remain the best performers in 2012, HFR said, rising 14.4 percent for the year through Oct. 31.
Managers focused on stocks also managed to add to their gains last month, even as the broader stock market sold off. Equity hedge funds rose 0.2 percent in October, with gains across long, short and market neutral exposures, HFR said. Those managers have returned almost 5.7 percent this year.
But macro-focused managers lost 2.2 percent last month and are now down about 1.3 percent for the year.
Hedge fund performance in October reflected a definitive shift in investor sentiment from the beta-driven optimism over steady improvements in stagnant global economies to the realities, risk and uncertainly inherent in additional European banking stabilization measures, U.S. elections and the pending fiscal cliff, said Kenneth Heinz, president of HFR.
David Einhorn's Greenlight Capital lost 1.5 percent last month, but it is still up 11.3 percent for the year, according to a person familiar with the numbers.
While hedge funds, in general, battled to make gains in October, some continued to record solid performance in the month.
Jason Mudrick's Mudrick Distressed Opportunity Fund, one of the year's best performers, gained 0.7 percent in October. The fund is up 18.8 percent for the year.
Mark Carhart, who used to run Goldman Sachs' Global Alpha Fund, told clients that his Kepos Alpha Fund gained 2.9 percent in October, and is up 15.5 percent net of fees this year.
And the Hutchin Hill Capital Master Fund climbed more than 4.2 percent last month, helping the portfolio hit yearly gains of about 7.62 percent, according to an investor note.
PAULSON'S MIXED BAG
For some investors, like John Paulson, October was another month of mixed returns.
Paulson & Co's Advantage Plus fund, a portfolio that slumped more than 50 percent last year, lost 3 percent and is now down 17 percent in 2012. But Paulson Enhanced, a fund that aims to make money on companies involved in mergers, climbed 1.46 percent in October, and is now up 10.8 percent for the year, the best performer in the billionaire investor's lineup.
His gold fund, which scored huge gains only a few years ago, tumbled 6.8 percent, and is now off 10 percent for the year. But his Credit fund rose 3.83 percent in October, and is up 6 percent for the year.
The Credit funds benefited primarily from gains in convertible securities, preferred equities and distressed debt, while the Recovery funds also rose from preferred equities as well as financials, according to an investor note sent with monthly results to investors.
Oct. 31 marked the redemption date for many of Paulson's funds, but a source familiar with the requests said they were roughly in line with historical averages, suggesting that investors had not rushed to pull money out despite some disappointing returns.
However, Paulson has had a share of setbacks this year when, for example, Citi Private Bank said it would pull out $410 million. More recently, New York's 92nd Street Y, which had a sweetheart deal where Paulson guaranteed any loss, pulled their money out when the group decided to move out of hedge funds.