The Hennessee Hedge Fund Index declined 5.52% in October (-15.30% YTD), but that was an improvement from September, when the composite hedge fund index lost 6.24%.

Hedge funds are still on pace to have their worst year ever, according to Hennessee Group, but there were positive signs in what continues to be a very difficult performance stretch.

The October improvement on September performance shows that hedge funds better managed volatility in October, as managers were already defensively positioned with reduced portfolio exposures. What's more, hedge funds, even down for the month and year, have still outpaced the S&P 500 by a wide margin. The S&P 500 declined 16.94% in October (-34.02% YTD). That's an outperformance of close to 20% for the composite hedge fund index.

The defensive position in October was also in evidence in the Hennessee Long/Short Equity Index, which declined -5.49% in October, versus 5.86% the previous month. A modest improvement, and even with the ban on short-selling lifted by the Securities and Exchange Commission at the beginning of the month, losses on the long side of portfolios more than offset gains from hedges and short positions, Hennessee Group said in a statement accompanying the index returns.

Rare among hedge fund categories in positive performance territory, the Hennessee Macro Index was up 0.61% for the month (-0.29% YTD). Last month, even that index had been down, although down to a lesser degree than most hedge fund indexes, at -1.73%. In September, in fact, the only hedge fund index among the 27 indexes run by Hennessee to have positive performance was the Short Biased Index, at 1.82%. Macro managers came back to positive performance in October by positioning their funds as long duration bonds, and short equities and credit. The U.S. dollar surge also helped macro hedge funds, Hennessee noted.

Other hedge fund index returns in October included:

• Hennessee Arbitrage/Event Driven Index: -4.70% (-13.45% YTD)
• Hennessee Distressed Index: -5.48% (-17.70% YTD)
• Hennessee Merger Arbitrage Index: -0.18 % (-0.86% YTD)
• Hennessee Convertible Arbitrage Index: -10.38% (-21.34% YTD)
• Hennessee Global/Macro Index: -5.48% (-17.68% YTD)
• Hennessee International Index: -4.27% (-19.79% YTD)