In a quarterly review of major asset-class indices compiled by Pimco, bonds have upended equities in developed markets but emerging-market equities are king.

The MSCI Emerging Markets Index returned 14.5% in the third quarter of 2007. At the other end of the spectrum, the Nikkei 225 lost -7.1%. Overall, says Pimco, volatility rose across risky assets, while bond volatility declined.

It is not yet clear how alternative assets have weathered the summer storm. The Cambridge Associates US private-equity and venture-capital indices are up 8.1% and 6.7% respectively, and the Dow Jones AIG Commodities Index gained 6.2%. But these numbers lag by three months so this is actually spring data û how these strategies fared in the credit crunch has yet to be seen.

Hedge fund numbers are up to date and have been mediocre, with the CSFB/Tremont Hedge Fund Index treading water at 1.1% for the quarter. Not all hedge funds are the same, of course. Amidst credit turmoil, the best performers were û no surprises here û emerging-market strategies (up 4.9%) and global macro (up 4.4%).

Otherwise though itÆs uninspiring stuff. Recent heroes in event-driven and distressed spaces have barely performed, while convertible arbitrage and fixed-income arb strategies lost money. The worst hit was managed futures, down -4.5%, a corker given it had been the strongest performer among hedge fund categories in the second quarter. A true case of æfrom hero to zeroÆ.

Moreover, while some hedge fund strategies kept their heads above water, they were beaten by both long-only equities and by bonds. Bonds in particular have done well, at least if you are a US-dollar based investor. JPMorganÆs non-US dollar hedged index returned 5.4% and the Lehman US TIPS Index returned 4.5%. Contrast the strong performance of boring old inflation-linked bonds to that of the Merrill Lynch High Yield Index, which gained a mere 0.3%. Clearly the gains have been in quality fixed income.

Nor is it just about ælinkersÆ and non-US markets: even US bonds managed 2.8% (according to the Lehman Aggregate), beating most hedge-fund strategies, as well as the S&P500 (up only 2%).

Both value and small caps have enjoyed good runs for years and, contrary to expectations, had a strong start in 2007, but the credit crunch served a dose of reality.

The Russell 1000 Growth Index gained 4.2% but its midcap value index lost -3.5% and its big-cap value index lost -0.2%; its small-cap growth fund returned precisely zero in the third quarter. And combining the worst of trends, RussellÆs small-cap value index dropped by -6.3%.

US large-cap and growth stocks outperformed other developed markets, with British, German and Japanese indices in negative territory, and the MSCI East Asia Far East Index (ie developed Asia Pacific) returning a lacklustre 2.2%.