By Rob Copeland 

The market's swoon has stung some hedge funds making concentrated bets on energy, technology and financial shares, the latest setback in a brutal year for stock pickers.

Claren Road Asset Management LLC, a unit of Carlyle Group LP with $8 billion under management, is down more than 10% for October, according to people familiar with its results, on track for the worst month since it was formed 19 years ago.

The firm has been bruised by pullbacks in energy firms such as natural-gas providers Cheniere Energy Inc. and Liquefied Natural Gas Ltd., as energy prices have fallen amid concerns about the pace of global growth. Also hitting Claren Road: a sharp decline in Fannie Mae and Freddie Mac shares following an adverse ruling in an investor lawsuit. Claren Road, which owns shares in the mortgage-finance companies, called the ruling a setback in a message to clients.

Owl Creek Asset Management LP is down 5% in October and has doubled its losses for the year, following a tumble in technology stocks such as T-Mobile US Inc., people familiar with the fund said. Bets on firms such as Micron Technology Inc. have weighed on Coatue Management LLC, down 7% year to date, according to people familiar with the firm.

Losses this month compound the difficulties facing the industry after a quarter in which stock-focused hedge funds on average lost money even as broad stock indexes rose, according to fund tracker HFR Inc.

The damage is being amplified by many hedge funds' tendency to buy and sell the same stocks, analysts and traders said, a practice known as herding that can boost returns when markets are rising but lead to sharp drops when sentiment reverses.

"One person gets out, another sees the price move and then you've got a stampede," said Faryan Amir-Ghassemi of Novus Partners Inc., an analytics firm for institutional investors.

The hedge-fund exodus is causing some unlikely market moves. Airline stocks typically rally when oil prices fall, cutting their fuel costs, but shares of American Airlines Group Inc. have fallen 12% in October, while Delta Air Lines Inc. and United Continental Holdings Inc. dropped 8.9% and 7.4%, respectively, in part, because of the heavy concentration of hedge-fund holders of the stocks, traders said. The steep decline mirrors an even sharper rise in the stocks earlier in the year as hedge funds and others piled into the industry.

One trader said a number of stock-focused funds went into negative territory for the year at the end of last week, prompting some to begin selling positions and turn defensive.

A closely followed list of the stocks most prized by hedge-fund managers has tumbled 8.1% since Sept. 1, compared with a 4.8% fall for the S&P 500, according to Goldman Sachs Group Inc. Cheniere Energy is down 21% this month, after shares rose 326% from the end of 2012 to this past September.

Hedge funds justify some of the highest fees on Wall Street by promising to make money even in volatile conditions. But as the industry has expanded--nearing $3 trillion, a threefold rise over a decade--managers have tended to cluster into the same trades. Many hedge-fund managers are lagging behind market indexes this year, creating an incentive to buy or sell volatile stocks in the hope of catching a quick rise, investors said.

Tide Point Capital Management LP, the two-year-old hedge fund backed by industry veteran Christopher Shumway, surrendered one-third of its 2014 winnings in the first two weeks of October, dropping 8%, said a person familiar with the fund. Its biggest position this year, according to filings, has been Cheniere.

"They're all playing momentum, and there's not a lot of thought," said Brian Shapiro, founder of Simplify LLC, which helps monitor hedge funds for wealthy individuals and institutions. "Hedge funds should outperform in negative markets; they shouldn't get caught."

Civeo Corp., which recently counted Jana Partners LLC and Greenlight Capital Inc. as large holders, lost half its value on Sept. 29 after disclosing its board opted not to convert to a real-estate investment trust, burning investors who had bet the stock would rise.

These slides could prove temporary. Many managers have been salivating at the promise of more volatility, which gives them opportunity to pounce in markets they believe to be mispriced.

Hedge-fund firm Zimmer Partners LP, one of the industry's top performers in 2014 with a 24% gain until October's swings, this month raised more than $100 million for a new fund that will bet on utility stocks.

Some traders are dialing back risk. Andrew Hall, famed for his big payday at Citigroup Inc., has whittled down most of his market bets, reduced use of leverage, or borrowed money, and kept a larger share of his portfolio in cash, according to investor updates.

Mr. Hall, who has long held aggressively bullish views on oil prices, told investors that booming U.S. production had swamped global demand and limited the potential for price gains for the time being.

Oil prices have plummeted, down more than 20% since June. Mr. Hall's Astenbeck Capital Management LLC posted a narrow loss last month and is up nearly 12% through the end of September, investor documents indicate.

Christian Berthelsen, Juliet Chung, Matt Wirz and Matt Jarzemsky contributed to this article.

Write to Rob Copeland at rob.copeland@wsj.com

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