Data from research firm PivotalPath has highlighted that hedge funds outpaced the S&P500 in July, with strong returns driven by financial sector exposure as funds sought to diversify away from megacap technology stocks, according to a report by XM.PARA_BREAK_SENTINEL_9f8e7d6cThe PivotalPath Composite Index, which tracks a wide range of hedge fund strategies, posted a 0.8% gain in July, bringing its outperformance relative to the S&P500 to 5.8% for 2024 so far.PARA_BREAK_SENTINEL_9f8e7d6cFinancial sector investments led the way, with the PivotalPath Equity Sector: Financials Index surging 9.6% in July. In contrast, an index tracking technology, media and telecom stocks recorded a modest 0.8% gain for the month.PARA_BREAK_SENTINEL_9f8e7d6cPivotalPath analysts noted: "Financials have become attractive for investors seeking reliable dividend payers, especially as the market shifts focus from Artificial Intelligence to more traditional growth drivers."PARA_BREAK_SENTINEL_9f8e7d6cJuly was a strong month overall for hedge funds, with all tracked strategies outperforming the benchmark S&P 500.PARA_BREAK_SENTINEL_9f8e7d6cOver the past 12 months, credit, multi-strategy and global macro strategies have delivered the highest alpha, according to PivotalPath.PARA_BREAK_SENTINEL_9f8e7d6cHowever, not all strategies thrived in July. The index tracking global macro commodities was the biggest loser, dropping 2.1% as many managers failed to anticipate the bearish shift in the commodities market.PARA_BREAK_SENTINEL_9f8e7d6cMeanwhile, hedge funds increased bearish bets on Japanese stocks at the fastest pace in over five years between 2 August and 8 August, according to recent Goldman Sachs data.