Many jittery hedge funds are clinging to core stock holdings in the hope that a rebound in equity markets in the final four months of the year will save the $2 trillion industry from its second calendar year of losses in just four years.

On average, funds that bet on rising and falling equity prices have suffered a loss of 14.4 percent so far this year, according to Hedge Fund Research's HFRX index, which gathers data on hedge fund performance globally, while MSCI's world index of developed stocks <.MIWO00000PUS> is down 10.5 percent.

Barring a rapid rebound in the final months of the year, traders are now staring at the prospect of another negative year, after a loss of some 27 percent in 2008 according to HFRI, and of no lucrative performance fee for some time to come.

For investors, the losses could raise further awkward questions about whether hedge funds are too linked to stock market performance and are failing to deliver on a key expectation that they will generate returns regardless of the market's trend overall.

Most funds are panicking about performance, said one investment bank executive who deals with hedge funds, who spoke on condition of anonymity, while one hedge fund executive said: Hedge fund psychology in a normal fund in a normal year gets very stressy around this time of year.

If the fund doesn't make (its losses) back, it's going to be a hell of a long time until you get paid a decent amount of money.

Equity funds are now hoping that history will repeat itself and that a rally in stock markets can drive a late surge in hedge fund performance, as seen in 2009 and 2010.

Managers have trimmed borrowing over the summer but, unlike in previous selloffs such as in 2008, many have largely hung onto their positions in favored stocks, believing these holdings will eventually come good, insiders say.

And, despite a reputation for aggressive short-selling, funds have also largely resisted the urge to put on big bets on tumbling prices to capitalize on further market falls.

According to Data Explorers, the ratio of long positions to short positions is close to a year-high of 11.38 times.

(Managers will) hope and pray for a good four months, said one fund of funds executive who spoke on condition of anonymity.

What's different this time is that while many funds have de-risked, many have kept core positions and are in a reasonable position to bounce back if there is a recovery.

STARS SUFFER

A number of big-name managers have been hit by a summer of bad news, including the U.S.'s debt downgrade, a deteriorating global economic outlook and the deepening eurozone debt crisis, which have rocked financial markets.

Lansdowne Partners, one of Europe's biggest hedge fund managers with around $16 billion in assets, has seen its flagship UK fund fall 15 percent in the year to August 26, a source familiar with the matter told Reuters, despite recovering some of the losses suffered early in the month.

Lansdowne declined to comment.

And high-profile manager Crispin Odey's MAC fund dropped 13 percent in August, leaving it down a similar amount so far this year, although Odey remains positive on markets.

But not all managers are suffering. GLG (part of Man Group Plc ) star Pierre Lagrange's European long-short hedge fund rose 1 percent in August, taking year-to-date gains to 5 percent, a source familiar with the situation said.

Marshall Wace, one of the UK's largest hedge fund managers, saw its $400 million MW Global Opportunities Fund, managed by Fehim Can Sever, grow 10.6 percent in August after being broadly short European markets and long emerging markets, giving it a year-to-date rise of 16.3 percent, a source familiar with the situation said.

Marshall Wace's flagship $1.5 billion long-short equity Eureka Fund managed a 0.46 percent rise in August and is up just over 4 percent in 2011, the same source added.

Polygon has seen its Convertibles fund gain 9 percent so far this year, a source close to the situation said. Its European event-driven fund, which invests in mid-cap stocks, lost 6 percent in August and is down 3 percent for the year. By contrast the UK's FTSE Mid 250 <.FTMC> index for instance is down 12 percent.

So-called global macro funds have profited this summer from bearish bets, such as being long fixed income and gold and short stocks. These funds, made famous by the likes of George Soros, are down just 1 percent year-to-date, according to HFRX.

The beginning of the year was more difficult, but recent sell-offs and negativity have allowed macro managers to be positive in performance terms, said Matt Osborne, fund manager at Altegris Investments.

The rally in the U.S. and core Europe (fixed income) has shown a real flight to quality and macro managers are participating in that.

(Additional reporting by Tommy Wilkes; Editing by David Holmes)

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