According to an eVestment report, hedge funds are outpacing global equity exposures in July, non-directional equity and credit outperform.

July was a volatile month for financial markets with Europe re-emerging as a source of instability, escalating tensions in eastern Ukraine and conflict in the Middle East all weighing on investor preference for risk assets. In this environment, aggregate hedge fund performance was negative 0.35%, the industry’s fourth down month of 2014. The losses dropped year-to-date returns to 2.62%.

Long/short equity funds’ net exposure near 50%

Long/short equity funds reporting monthly exposure level data to eVestment showed a second consecutive rise of short exposure heading into July. Median short exposure had been near its 5-year low through much of 2013, but has since risen to its highest level since February 2010.

Hedge funds performance

With net exposure near 50% long for most of 2014, it is apparent why long/short equity strategies have lagged the S&P 500 (INDEXSP:.INX). However, with major global indices falling into the negative territory for the year, relative returns from long/short equity are beginning to appear favorable.

Activist hedge funds fall 0.88%

Activist strategies declined in July, falling 0.88%. The group’s volatile returns have left them only slightly ahead of the aggregate of all hedge funds in 2014, returning 2.98% for the year.

Hedge funds performance

Despite 10YR UST yields declining during the month, a sell-off in high yield markets appeared to negatively impact directional credit strategies in July. The decline of 0.64% for the aggregate of credit strategies was their first negative month since August 2013. Relative value credit managed to perform well, rising 0.22% in July.

Macro funds fell 0.75%

Macro funds fell 0.75% in July bringing returns back to nearly flat for the year at positive 0.12%. Larger macro strategies underperformed during the month, falling an average of 1.10%. The same was true for managed futures strategies as large funds in this category declined 1.91% in July and are down 0.13% for 2014.

Options/volatility strategies posted above average declines in July, hurt by the sharp uptick of volatility during the month. This is further evidence the group’s industry leading H1 performance was due to aggregate positioning aligned to take advantage of what had been a pervasive low volatility environment.

Hedge funds performance

Aggregate returns of commodity-focused strategies

Commodity-focused strategies produced the best aggregate returns of any major market segment in July despite large price declines across the commodity spectrum. The group’s dispersion of returns during the month was far greater than any other market segment, an indication that despite aggregate performance gains, many funds posted large losses during the month.

Emerging market hedge funds posted positive returns despite large losses coming from funds targeting Eastern Europe. Gains came from rebounding Middle East-focused funds and exposure to China.