Hedge funds rebounded last November from a flat October, posting positive returns nearly across the board. However, because of their nature to hedge the market, hedge funds continued to lag the impressive performance of equity markets.

The Morningstar 1000 Hedge Fund Index and the currency-hedged Morningstar MSCI Hedge Fund Index each rose 1.8%. The Morningstar US Equity Hedge Fund Index increased only 2.4%, lagging the S&P 500’s 6.0% rise in November.

Two hedge fund categories outperformed the rest: the Morningstar Global Trend and the Morningstar MSCI Directional Trading Hedge Fund Index, which follow price trends and currency markets, respectively. The Global Trend fund posted returns of 3.4%, while the directional trading fund had returns of 1.3%.

While the United States led developed markets, owing to the Federal Reserve’s plan to keep interest rates low, the world outside of the U.S.—both developed and emerging markets—posted similar returns. The Morningstar MSCI Developed Markets Hedge Fund Index, for instance, rose 1.9%, while the Morningstar MSCI Emerging Markets Hedge Fund Index was up a similar 1.7%.

Only two hedge strategies posted declines in November. It’s no surprise that as most equity markets mounted returns, the Morningstar Short Equity Hedge Fund Index—an index built to hedge against falling market returns—fell 1.4%. Japanese equities, on the other hand, led a decline in Japanese and Asian hedge funds due to continued deflation concerns and the yen’s appreciation against the dollar. The Morningstar Japanese Hedge Fund Index and the Morningstar Developed Asia Equity Hedge Fund Index fell 2.9% and 0.8%, respectively.

After a nearly dormant mergers and acquisitions scene for several months, M&A activity rose significantly in November, though spreads on merger deals are declining. Spreads in convertible arbitrage are shrinking as well, as the Morningstar Convertible Arbitrage Hedge Fund Index rose only 1.0%. That’s the same as in October, though much less than earlier in 2009.