Hedge funds stumbled slightly in February after starting off the year with gains, although the industry outperformed the major U.S. stock indices and outpaced a dismal performance in 2008, according to two research groups.

Hedge Fund Research reported on Friday that its composite hedge-fund index slipped 0.51% in February, while Hennessee Group said Monday that its hedge-fund index was down 0.78% last month. When compared with broad market indices, like the S&P 500's and Dow Jones Industrial Average's 11% declines, hedge funds outperformed by about 10 percentage points.

The missteps last month reverse the gains from January. HFR's composite hedge-fund index rose 0.39% that month, while Hennessee Group said its hedge-fund index was up a sharper 0.9%.

Still, funds are outperforming the broader market, a positive sign after a miserable 2008. Over the first two months of the year, HFR's composite index is down a mere 0.59% and Hennessee Group's index has managed a 0.12% gain, compared with roughly 20% declines on both the Dow and S&P 500.

"Hedge funds were flat the first two months of the year, while equity markets have declined almost 20%," said Charles Gradante, co-founder of Hennessee Group, in a statement. "Hedge funds are doing what they do best, preserving capital in down markets and generating alpha by managing exposures and perceptive stock selection."

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