Hedge funds are frequently promoted as offering positive returns regardless of conditions in the markets. But the recent performance of funds of hedge funds, which offer the additional security of investing across a range of underlying funds, has cast doubt on these claims.

Dollar-denominated funds of hedge funds lost 1.4 per cent in value during the second quarter following the stock market reversal of May while euro, sterling and Swiss franc funds were also hit, according to a review by the fund analysis arm of Standard & Poor’s.