Stocks reaching record highs in early July haven't caused hedge funds to decrease their market exposure. In fact, many are adding to their bullish bets.
Hedge funds that practice a "market neutral" strategy—generally keeping their long and short bets in balance—are now 18 percent net long, according to Bank of America Merrill Lynch data as of July 2.
Market neutral funds average an exposure of zero; the new positioning means they are relatively bullish, with a preference for stocks displaying a potential for growth and those with relatively small market capitalization, according to the firm. By comparison, the same funds were 10 percent net long as of June 18.
Stock-focused hedge funds that generally prefer long bets are even more sanguine at 33 percent net long, even if that's slightly below their 35 percent to 40 percent average market exposure. Their slight preference is also for smaller companies, but of higher quality than market neutral funds, according to the data.
"Macro" funds—those that bet on macroeconomic trends using multiple types of securities—also recently increased their long exposure in and Nasdaq stocks, according to the report.
Hedge fund performance has been tepid in 2014.
The Absolute Return Composite Index, which tracks funds across strategies, is up 4.34 percent through June. The best-performing strategies are funds that invest in distressed stocks and bonds (up 6.45 percent) and that practice activism, so-called "event driven" managers (up 6.07 percent).
The AR U.S. Equity Index is up 4.18 percent; the S&P 500 rose 6.05 percent over the same January-June period. The worst-performing strategy is commodity-focused managed futures funds, down 1.32 percent on average.
—By CNBC's Lawrence Delevingne