Hedge funds have reversed the heavy losses they suffered in June, as some 70 percent of reporting funds delivered positive returns in July, with Japanese hedge funds outperforming.
A rally in global markets in July helped hedge funds across the world bounce back from the lull of the previous month, according to hedge fund research firm Eurekahedge. Funds posted their largest loss for 12 months in June on fears of the Federal Reserve tapering its bond buying program and slowing growth in China.
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All major hedge fund investment regions witnessed positive returns in July. Japanese hedge funds outperformed the underlying market for the third consecutive month, gaining 1.1 percent despite declines in the Tokyo Topix which fell 0.19 percent and the Nikkei, which was down 0.07 percent at the end of the month.
At the end of July, Eurekahedge was tracking more than 550 funds that had delivered over 15 percent year-to-date, 300 funds that are up more than 20 percent and 100 funds up more than 30 percent year-to-date.
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"Although Japanese equities finished lower for the third consecutive month, positive indications on accommodative monetary policy from the U.S. as well as the European Central Bank were supportive for most global indices. Healthy second-quarter corporate earnings from the U.S. also helped to drive the upward momentum during the month," the Eurekahedge report found.
North American hedge funds posted gains of 1.21 percent during the month, but could not match the S&P 500, which surged 4.95 pecent in July on the back of upbeat earnings, Fed announcements and positive macroeconomic data.
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"The Eurekahedge Long Short Equities Hedge Fund Index saw the strongest gains of 1.95 percent in July, as most global equity markets rallied with the S&P500, FTSE100 and Hang Seng climbing 4.95 percent, 6.53 percent and 5.19 percent respectively," said Eurekahedge.
"Event-driven funds were up 1.54 percent as the strong IPO (initial public offering) and M&A (merger and acquisition) volume in 2013 continued to provide various opportunities for the funds. Distressed debt funds delivered positive returns for yet another month and are up 9.02 percent year-to-date," the report found.
—By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave