Many hedge funds have taken their lumps recently. August was a terrible month. By one measure, the Hennessee Hedge Fund Index, funds on average declined 3.36 percent in August and are down 1.80 percent year to date on a net basis. The S&P 500, meanwhile, fell 5.68 percent in August and is down 3 percent year to date. The Dow Jones Industrial Average fell 4.36 percent in August but is up .31 percent year to date. The NASDAQ Composite Index fell 6.42 percent in August and is down 2.78 percent on the year.

Unsurprisingly, according to Hennessee, directional strategies such as long/short and event-driven took the biggest losses, while short biased and macro funds held up well. Correlation was high and a lot of funds tripped up on it. Some reduced their exposure to big-name stocks only to see them rally toward the end of the month. The real issue this year may be the wide dispersion in results we have seen so far. A lot of big-name funds have taken their lumps, well in excess of the fund averages. The list includes John Paulson's Advantage and Advantage Plus fund. The plus fund is said to be down 34 percent for the year.

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