Chicago-based Hedge Fund Research, one of the largest trackers of hedge fund returns, reported that its Global Fund Index contracted by 2.6% in the month to November 29 - the largest monthly decline in the index since April 2000, when the dot com meltdown resulted in a 3.85% fall in the index.

It seems that hedge fund strategies involving equities have been the most severely hit; HFR's Equity Hedge index fell by 4.3% in November. Event-driven funds, which invest around takeovers and corporate restructurings, also took something of a beating last month, with HFR showing these funds down 3.67%. Not one of the hedge fund strategies in the HFR Index managed to gain ground last month.

Preliminary monthly results from the Dow Jones Hedge Fund Strategy Benchmarks confirm a wretched month for hedge fund investors, with five out of six of its strategies losing in November. Again, the main long/short equity strategy was the worst affected, losing 3%. Only the Dow Jones Equity Market Neutral strategy gained, returning a modest 0.3% for the month.

While hedge funds, with their emphasis on absolute returns and ability to 'short' certain markets and instruments, should be better equipped to profit from market volatility than conventional index tracking funds, reports suggest that recent market conditions have caught out the less nimble hedge funds employing 'black-box,' or computer programmed, trading techniques.

However, it is not all doom and gloom for hedge fund investors. Many funds still have healthy year-to-date returns. HFR's Absolute Return Index is showing a 6.6% gain YTD.

Also, some of the best known and largest hedge funds managed to turn a profit last month, including Man Group’s flagship AHL Diversified, which delivered a 4.26% return in November and is up almost 25% YTD. Meanwhile, the Hermitage Fund was also reported to be in positive territory in the first three weeks of November, by a shade under 2%.