Ugly October: 'Hedge' funds fail to protect

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Hedge funds designed to protect against falling and volatile markets have made a strong pitch to investors: Trust us with your money, and we'll make lots of it for you when years of relatively smooth, positive stock returns inevitably end.

The beginning of the end—or at least a temporary market pullback, depending on whom you ask—finally came in October and market gyrations increased. The S&P 500 is down nearly 3.5 percent and the CBOE Volatility Index, or VIX, is up nearly 14 percent for the month as of Monday.

But short-selling experts, volatility arbitrage specialists, macroeconomic forecasters and other funds designed to profit from choppy or down markets have mostly underwhelmed in October, according to early performance estimates obtained by CNBC.com.

"It's brutal," said a frustrated hedge fund researcher at a money management firm for wealthy families who asked not to be named. "So far I'm not really impressed by anybody."