Forget Tepper, hedge funds stay bullish

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Traders work the floor of the New York Stock Exchange.

"Trend bullish."

That's how Bank of America Merrill Lynch describes hedge fund positioning into the end of 2014.

Large funds that speculate on market direction have more at risk in the stock market than at any other time in the last year, according to mid-December Commodities Future Trading Commission data of S&P 500 Index contacts that were analyzed by the bank in a new report.

Hedge funds that focus on stocks are also 36 percent net long, a reference to how much their bullish bets outweigh their bearish ones. That figure is down from 42 percent earlier in December but in line with benchmark positioning of 35 percent to 40 percent, according to Bank of America. So-called macro hedge funds, which bet on broad macroeconomic trends using various types of securities, also added to their bullish bets on the S&P 500 and Nasdaq.

"Technicals are bullish and [data averages suggest] longs may increase further," the report said.

The optimistic outlook comes as the Dow Jones Industrial Average on Tuesday crossed 18,000 for the first time—and as billionaire investor David Tepper of Appaloosa Management warned that 2015 was setting up to be like 1999.

"This year rhymes with 1998. Russia goes bad. Easing [is] coming from Europe. Sets up 1999.... [oops] I mean 2015," Tepper wrote in an email to CNBC Tuesday.

Tepper said he isn't predicting a big crash next year. "You [just] have to be aware of the possibility for some sort of overvaluation of the markets. And they are fair value now," he wrote.

Read More Appaloosa's David Tepper warns 2015 is setting up to be like 1999

While hedge fund managers are bullish on stocks, their performance has mostly not matched them this year.

The Absolute Return U.S. Equity Index, which tracks managers who invest in stocks, gained 3.74 percent through November. The S&P 500 gained nearly 12 percent over the same period.

Many hedge funds seek to provide their investors risk-adjusted returns, meaning their gains often do not match the rises—or falls—of the broader market.

Read MoreDow at 18,000: A buy signal for retail crowd?