It's been a rough year for hedge funds, with many underperforming their index benchmarks or even losing money.
One explanation is crowding into bad stock picks: A new Goldman Sachs analysis of the 50 stocks most commonly held in large quantities by 777 hedge funds found the group suffered its worst monthly return outside the "crisis periods" of 2002, 2008 and 2011.
Their "longs"—bets on the appreciation of a stock's value—lagged the by 5 percent in March and April, according to a May 21 report. Long losers for the year include Google (-6 percent), General Motors (-16 percent) and Citigroup (-11 percent).
Overall, the "Hedge Fund VIP" basket has returned just 1.4 percent through May 16 versus a 2.4 percent total return for the S&P 500.
The most popular hedge fund "shorts"—bets against the value of a stock—have also backfired. The 50 most widely shorted companies actually gained 6 percent through May 16, according to the survey. Short losers for the year include Gilead Sciences (+8 percent), AT&T (+7 percent) and IBM (+1 percent).
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Regardless of strategy, the average hedge fund has lost 0.2 percent through May 16, according to Goldman Sachs. Stock-focused funds have fared worse, losing 2 percent.
"Funds largely kept pace with the index until early April, when they cut net exposure just as the S&P 500 and most popular long positions began to rebound," the report said. "Poor equity hedge fund performance is unsurprising given historically low return dispersion."
Dispersion refers to the correlation between stock prices. Low dispersion means that stocks generally move together, which can challenge investment managers—stock pickers—who analyze company fundamentals.
Generally, hedge funds are still betting for the stock market to rise. Goldman Sachs estimated that funds in aggregate operate 53 percent net long, meaning the value of their long bets outweigh their shorts by about half. That's a slight reduction from a decade highs of 54 percent in the fourth quarter of 2013.
—By CNBC's Lawrence Delevingne.