Hedge funds have reversed the heavy losses they suffered in June, as some 70% 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.
(Read more: Hedge funds lose big in June as outflows jump )
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% despite declines in the Tokyo Topix which fell 0.19% and the Nikkei, which was down 0.07% at the end of the month.
At the end of July, Eurekahedge was tracking more than 550 funds that had delivered over 15% year-to-date, 300 funds that are up more than 20% and 100 funds up more than 30% year-to-date.
(Read more: If your hedge fund is criminal, it'd better be big )
'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% during the month, but could not match the S&P 500, which surged 4.95% in July on the back of upbeat earnings, Fed announcements and positive macroeconomic data.
(Read more: Investment Banks Eye 'Hedge Funds for the Masses' )
'The Eurekahedge Long Short Equities Hedge Fund Index saw the strongest gains of 1.95% in July, as most global equity markets rallied with the S&P500, FTSE100 and Hang Seng climbing 4.95%, 6.53% and 5.19% respectively,' said Eurekahedge.
'Event-driven funds were up 1.54% as the strong IPO and M&A 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% year-to-date,' the report found.
-By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave