Bruised and battered, the hedge fund industry is looking to rebound from negative returns following the end of a tough quarter. According to a report released by hedge fund data provider eVestment, the sector on average lost -0.74% for September, slightly better than the -1.40% recorded by the S&P 500 total return index during the same period last year.

Overall, the hedge fund industry posted its first negative quarter since Q2 2013, returning -0.48% through the first nine months of 2014. Year-to-date (YTD), the segment is still behind in terms of performance, trailing the S&P 500 total return index by a margin. The index returned around 8.35% YTD while hedge funds on average yielded 2.88% YTD.

Hedge funds in general have been underperforming the index as of late. In 2013, eVestment reported that the industry on average returned 10.36% from the 32.40% yield recorded by the S&P 500 index. In spite of the recent track record of underperformance, hedge funds continue to receive increasing amounts of inflows this year.

In August, the hedge fund industry received around US$11.38 billion of new inflows with most split between equity strategies, US$5.34 billion and fixed income/credit strategies, US$6.08 billion. The industry is still on pace to having a record year, with YTD inflows of US$113.48 billion, almost more than double than the entire amount of inflows recorded in 2013.

Managed future funds were by far the most successful strategy over the latest quarter, according to the report. It was one of the few strategies to record an average positive return, capturing 3.49% for Q3 2014. "Recent returns come as a relief for a strategy which returned nearly 900bp less than the industry in 2013 and has faced outflows of US$25 billion in 2014," the report notes.

Despite posting declines for September, activist funds are still the best performing funds in the industry having had average returns of 5.15% YTD. Credit strategies fell -1.83% in September, their largest aggregate decline since 2008 when the group dropped 4%. This recent decline was possibly due to "the group's exposure to Europe, where losses were elevated, and to higher yielding credits in the US and globally," says the report. Event driven funds declined in September and were down in Q3 2014, -1.04% and -1.72%, respectively. Yet, the group still remains popular for investors who have allocated over US$42 billion YTD of new inflows.

Funds investing in Brazil had a rough month, with losses of -10.56% in September, far more than any other region tracked by eVestment. This is the largest loss for funds invested in Brazil since September 2011.

Currently, the bright spot in the emerging market space is India, posting returns of almost 40% YTD. However, emerging markets are still behind in performance compared to developing markets. Typical big performance generators such as China and Japan have been muted this year, so far returning 0.15% and 0.43% YTD respectively. This is a far cry from the double digit returns they generated for investors last year.