NEW YORK ( TheStreet) -- Hedge funds that specialize in managed futures have trounced index mutual funds based on the S&P 500.For the decade ending in 2009, the Altegris 40, an index of managed futures funds, more than doubled, while the S&P 500 dipped into the red. The performance of futures funds was particularly notable during the height of the credit crisis. For 2008, the Altegris 40 returned 15%, an intriguing accomplishment in a year when the S&P 500 lost 37% and most hedge funds declined. Managers of futures funds say that the strong showing in the downturn was not surprising. "In periods of turmoil, managed futures have generally done well," says Brian Hurst, a principal at AQR Capital Management, which runs AQR Managed Futures Fund, a hedge fund. Managed futures funds invest in a wide range of futures, including instruments that track stocks, bonds, agricultural commodities and metals. The funds typically follow trends. When spot prices of wheat or dollars are rising, a fund manager will go long the futures, betting that the rally will continue. When prices drop, the manager takes a short position, hoping to profit from continuing declines. Hurst of AQR says that the strategy often works because of the principles of behavioral finance discovered by Daniel Kahneman and Amos Tversky, who were awarded the Nobel Prize for their work on how people make decisions. According to the researchers, people adjust to changes in the market only gradually. Say a pharmaceutical company wins approval for a new drug. The stock may rise a bit, but the shares will not soar as much as the news might justify, explains Hurst of AQR. The price will only gradually rise as investors slowly accept the news and bid up prices. That explains why a trend can begin slowly and persist for a long time. "Traders and investors tend to underreact at first," Hurst says. Of course, trend following doesn't always work. In some instances, trends reverse suddenly, and portfolio managers suffer losses when their long or short bets prove wrong. To avoid stumbling, AQR stays broadly diversified, typically holding 100 different positions. "We often make wrong bets, but we have been right on average," says Hurst.