Hedge funds hit in August

LONDON (CNNMoney.com) -- Hedge funds performance suffered last month as the subprime crisis and credit crunch increased volatility in financial markets.

Hedge funds lost 1.31 percent in August, according to Chicago-based industry tracker Hedge Fund Research. By comparison, the S&P 500 index added about 1.29 percent during the month.

Junk bond, emerging markets and "macro strategy" funds were among the weakest performers in August, HFR said. Macro strategy funds invest in currencies and other instruments in markets around the world.

The performance figures include results from more than 40 percent of the funds that make up the HFRI Fund Weighted Composite Index. The performance figures will be updated as the rest of the funds report their results, HFR said.

Financial markets have been in turmoil since two Bear Stearns hedge funds invested in securities backed by subprime mortgages blew up in June, sparking a tightening in global credit markets.

Volatility in hedge fund performance increased in late July, and has persisted into September, HFR said. But some funds - including so-called quantitative, or computer-driven funds - recovered a majority of their August losses.

"While a number of strategies posted losses for the month, much of these aggregate, intra-month losses were pared into month-end," according to Ken Heinz, president of HFR.

While hedge funds have been hard hit by the volatility, not all strategies have been punished. According to HFR, short-selling strategies - when investors profit from the decline in the price of a security - gained last month.

Hedge funds also continued to attract investors - through July at least. Hedge fund assets under management rose $16.8 billion to $1.76 trillion at the end of July, the latest fund flows information available from HFR.