Hedge fund performance in July lagged behind the equity markets in July, according to the Hennessee Group, an advisor to hedge fund investors.

The Hennessee Hedge Fund Index, a measure of more than 1,000 funds tracked by the firm gained 1.91% in July, while the S&P 500 rose 6.88%, the Dow Jones Industrial Average was up 7.08%, and the NASDAQ climbed 6.90%. The Barclays Aggregate Bond Index increased 1.07% in July.

So far this year, the Hennessee Hedge Fund Index has gained 1.86%, while the Dow is up 0.36%, and the Barclays Aggregate Bond Index has advanced 6.46% for the year. The NASDAQ is down 0.64% and the S&P 500 is down 1.21% this year. 

“Hedge fund managers lagged the broader markets due to defensive portfolio positioning,” Lee Hennessee, managing principal of the Hennessee Group, said in a press release Monday. “Managers began July with lower than average exposures after significantly reducing gross and net exposure levels during May and June. As a result, hedge funds lagged as equity markets rose sharply.”

The Hennessee Long/Short Equity Index rose 1.81% in July and is up 1.22% year to date. In July, U.S. equity markets their best month in a year, on better-than-expected corporate earnings. The sectors that led performance were materials, up 12.2%, industrials, up 10.3%, and energy with an 8.0% gain. The healthcare sector posted the lowest gains in July, up 1.3%, and the sector with the steepest loss this year, down 7.6%.

The Hennessee Arbitrage/Event Driven Index advanced 2.06% in July and has gained 4.51% this year. Arbitrage and event driven managers posted gains as volatility declined, liquidity improved, equity markets rallied and credit spreads tightened, Hennessee Group said.

The Hennessee Global/Macro Index gained 1.92% in July and has advanced 0.29% this year. After three months of losses, international equities reversed course in July and experienced a sharp rally as the MSCI EAFE Index advanced 9.41%, but still has lost 6.70% this year. Hedge funds lagged due to conservative portfolios.