(HedgeCo.Net) The hedge fund industry has posted respectable returns in October, with key strategy distinctions becoming clear. According to Goldman Sachs and other market reports:
- As of end-October 2025, hedge funds overall are up more than 13 % year-to-date. Reuters+1
- Stock-picker (long/short) strategies returned ~1.75 % in October, underperforming the S&P 500’s ~2.3 % gain. Reuters
- Technology/Media/Telecom (TMT)-focused funds posted ~2.1 % in October; healthcare-focused funds jumped ~8.4 %. Reuters
- In contrast, systematic and quantitative funds struggled, partly due to exposures to short bets and structural dynamics in quant models. Reuters
What’s driving the divergence
- The healthcare and TMT sectors have benefitted from both sector-specific tailwinds and investor flows, enabling stock-pick strategies to leverage these niches.
- Quant and systematic funds often depend on dispersion, trend following and statistical arbitrage — conditions that in October were less favourable (e.g., mean-reversion, sector rotations, crowded trades), creating headwinds.
- A resurgence in equity markets and select themes (rather than broad market-wide rallies) favours fundamental, bottom-up stock pickers over broad quant platforms.
Strategic implications
For hedge fund managers:
- Stock-pick managers may lean harder into niche/uncovered sectors (e.g., biotech, digital infrastructure) where dispersion remains high and alpha opportunity is richer.
- Quant managers may revisit model assumptions: crowded short positions, sector biases, and structural market shifts are impacting performance. They may increase focus on risk signals, alternative data and adapt to lower-dispersion regimes.
- Investors (LPs) should evaluate strategy taxonomy: not all hedge funds are equal in this environment. Understanding which funds are built for high-dispersion vs low-dispersion environments is key.
Why this matters
The data suggests that hedge funds’ performance is bifurcating based on strategy architecture and market regime fit. With the broader hedge fund industry returning double?digits YTD, performance is respectable, but the variation across strategy types means “hedge fund” is a broad label masking divergent outcomes.
Outlook
If markets enter a phase of higher dispersion (e.g., driven by geopolitical shocks, regulatory shifts, monetary policy surprises), stock-pick hedge funds may flourish. If instead markets become trend-driven, quant and systematic funds may reclaim strength — but they may need to retool models in the interim. For investors, strategy selection and timing matter more than ever.