Hedge funds appear to be abandoning stocks in favor of fixed-income strategies.

Equity hedge funds and hedge funds using fixed-income strategies each managed about $586 billion, according to the Financial Times. For the first time ever, fixed-income strategies, or relative value arbitrage, may surpass equities as hedge funds' top investment category.

Performance of many equity hedge funds has fallen short. The average equity hedge fund was up 5.8 percent for the year at the end of November, while the Standard & Poor’s 500 was up 15 percent, the Times reports, citing hedge fund research firm HFR.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

A lackluster performance, to be sure. But some hedge funds boasted returns in the double digits, by employing multiple strategies, many investment teams and cheaper financing allowing them to use more leverage.

Spreading out capital among many investment teams gives them "smaller bite sizes" more suitable in the current less liquid market, Jim Vos of Aksia, a hedge fund advisory firm, tells the Times.

Funds using the "multi-strategy" were up 7 percent as of Nov. 30, according to Times.

Poor performance is the main reason driving the turn away from equities, according to The Wall Street Journal.

Increasing regulatory scrutiny, demanding investors and an unfavorable investing environment have combined to make things difficult for hedge funds, The Journal reports, noting that 424 hedge funds shut down in the first half of the year.

"Closures this year have been death by 1,000 cuts: a drip-drip of underperformance rather than a spectacular blowup," Guy Wolf, a strategist at brokerage firm Marex Spectron, tells The Journal.

The event-driven strategy used by many hedge funds doesn't work as well in today's environment when announcements from politicians or central banks drive stock market swings.

Plus, investors are more demanding, hedge fund experts say. They want fund managers to think about long-term results, but demand strong short-term results. More investors ask for frequent performance reports, more liquidity and steadier returns but still want the same returns.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.