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From Kirsten Bischoff, Opalesque New York:

So far, July has not proved to be the 2011 inflection point hedge funds were hoping for. According to research from Bank of America Merrill Lynch, midway through the month hedge fund performance is largely flat. The BofA/ML Investable Hedge Fund Index was up only 6bps at mid month, with equity long/short funds sputtering at -0.33%.

The lone bright spot in July so far is CTAs, which are up 1.50%. However, thus far in 2011 CTAs are largely in negative territory (Newedge CTA Index reported -1.69% losses in June for a -3.96% YTD loss). Some tactical hedge fund movements that BofA/ML reported for the beginning of July indicate how managers are feeling about the equity markets, and those feelings remain bearish.

Equity market neutral managers have greatly reduced exposures, drawing back from 16% to only 4%, although that exposure is slightly net long. Traditional long/short managers (who are down 33bps for the month so far) are still net long the market, although those exposures too have seen a pullback to 28% (whereas the benchmark range is typically 35%-40%).

A recent survey of hedge fund managers, reported by TrimTabs Barclayhedge showed that many expect a rough second half to the year, with expectations that the US may slip into another recession. Equity managers’ defensive positions may indicate t......................

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