The S&P/ASX 200 Index (ASX: XJO) is off to a shaky star to the year, having slipped nearly 7% into the red this past month.

Now reports have surfaced that hedge funds are joining the action – but not how you'd think. One hedge fund giant is short selling ASX shares as revealed through a new fund launched last week.

What does this mean for investors? Let's take a dive and see.

Hedge fund short selling ASX shares

Bridgewater Associates is one of the world's largest and well-known hedge funds.

The fund's new All Weather exchange traded fund (ETF), launched with State Street last week, lets retail investors follow its 'All Weather' strategy.

For reference, the fund is called the SPDR Bridgewater ALL Weather ETF (NASDAQ: ALLW).

Initial disclosure's from the ETFs product statements show it is short selling Australian stocks and bonds.

Specifically, it has a short position on ASX 200 futures andAustralian 10-year Government Bond futures.

These equal a direct short position of $1.9 million on the ASX 200 index and about $4 million the Australian 10-year bond, respectively.

Basically, if the ASX falls and/or interest rates rise, Bridgewater stands to profit.

While its current size is small (about $45 million at the time of writing), The Australian Financial Review reports today that the hedge fund's underlying short position on Aussie assets could be much larger.

And it wouldn't be surprising either. Bridgewater currently manages over US$200 billion in assets, making it one the largest out there.

Ray Dalio, Bridgewater's founder, created the "All Weather" strategy back in the 1970s to perform during various economic conditions.

It's designed to perform well whether inflation is rising, the economy is growing or shrinking, or in times of deflation. That is, during "all weather" of conditions. It does this by owning and short selling securities that do well and underperform in various markets, respectively.

What does this mean for investors?

The All Weather ETF replicates Bridgewater's hedge fund strategy, and is part of a growing trend in hedge fund replication.

But whether it is short selling Aussie stocks and bonds as a tactical move to profit, or as portfolio hedge, remains to be seen.

Part of the ETFs supposed appeal is that it includes "asset classes that are currently underrepresented in most portfolios".

It also "puts time to work for you", as per the product statement.

The fund also has a 40% allocation to short-term US Government bonds, and 13.5% in the US stock market. It also has additional stakes in emerging markets and Chinese stocks.

What does it mean for Aussie shares? Likely, not very much. It's not unusual for hedge funds of any size to be buying and short selling stocks at the same time. It is the very essence of these vehicles.

It's also important to maintain a long-term view in any case. With that in mind, the record shows the ASX 200 compounding at an average 9-10% per year throughout history.

Foolish takeaway

Hedge fund giant Bridgewater is short selling ASX shares and bonds, revealed as part of a new ETF launched wth State Street last week.

But on closer inspection, it's a little more nuanced. The fund has a small short on the Aussie market. Is it betting the market will collapse? Hard to tell.

In the meantime, Aussie shares continue their turbulence and are down 2.5% this year to date.