Hedge funds have been taking on more risk in their portfolios for more than two months, a good sign that they are buying into the summer market rally, says a new report from JPMorgan Chase.

So don’t be surprised if a number of hedge funds report strong gains for the third quarter.

Hedge fund performance had been lagging the overall markets for the past two years or so. One of the main reasons: They sharply reduced their risk exposure, afraid to get out in front of price movements given the many macro uncertainties out there, whether it be the European recession, possible breakup of the euro, the U.S. presidential elections, the looming so-called fiscal cliff, possible oil interruption if Israel bombs Iran — pick your favorite fear.....