Just when hedge funds seemed to have gotten the wind in their sails, thanks to a strong summer and robust September, year 2009 is ending on a flat note, albeit not as badly as it had begun.

One industry bellwether is the Credit Suisse/Tremont Broad Hedge Fund Index, which scraped together a rather unimpressive 0.13% gain for October, nearly spoiling eight previous months of positive returns.

And while November saw stock markets resume the 2009 rally, most long/short equity hedge funds missed out because they were too keen to lock-in profits for the entire year, says Credit Suisse Alternative Investments.

The firm's Liquid Alternative Beta (Lab) series of indices, which seeks to replicate the aggregate return profiles of alternative investment strategies using liquid, tradable instruments, reported negative performance for long/short funds. The Lab Long/Short Equity Liquid Index was down a net -0.75% for November.

The Lab index for global macro funds returned a positive 2.23% for November. That may be a little better, but it pales beside the 6% gain for the S&P 500 or the 3.8% rise in the Dow Jones World Index over the same period of time.

Lipper, a unit of Thomson Reuters, summarised hedge-fund performance through October as beating the long-only indices, but a spike in volatility tripped up managers at the end of that month.

Equity market-neutral, long/short equity and managed futures all suffered negative performance in October but all other categories of hedge funds (including multi-strat, global macro, fixed-income arbitrage, event-driven, emerging markets, dedicated short-biased and convertible arb) posted positive gains. Performance for the month was essentially flat. But October was a negative month for stock indices, with the MSCI World TR Index down -1.76% for October.

Aside from the dedicated short-based funds, which had a cracking October up 4.8%, the rest of the industry has been decidedly ho-hum: barely outperforming long-only indices in October (acceptable, given the bearish equity story), underperforming in November (embarrassing, given the market rebound).

It is suspect to take an industry average as a proxy for how individual managers think. But, as a whole, this year the hedge-fund industry has taken a conservative approach. No doubt managers have been wary of the rally in equity and credit; perhaps they also have been prepared to do well enough without taking too much risk.

Year to the end of October, the CS/Tremont index is up 15.1%, which should make the industry feel good. Just don't mention the fact that in Bondland, the JP Morgan EMBI+ is up 24.3%, the MSCI Emerging Markets equity index is up 65%, the MSCI World is up 23.3%, the UBS Global Convertible index is up 34.9% and even the S&P 500 is up 17.8%.

Absolute return means above zero, and taken as a whole, hedge funds are not meant to be as risky or as high-powered as equities. So the fact that the CS/Tremont has underperformed long-only equity indices is not a bad thing; it's probably a sensible thing. And it is outclassing the Barclays Capital Global Aggregate Bond index, which is up 8.3% to date. This has been an unusually strong year for even bog-standard fixed income.

All-in-all, it appears hedge funds have performed as advertised this year, so it's no surprise if managers would rather ignore the fourth quarter. If markets rally this month, the hedgies will have been caught out, but the figures suggest 2009 is more about restoring credibility than shooting the Christmas lights out.