Hedge funds turned in better performance numbers for August than the major equity indexes, and it’s because they made the most of a general sell off of risky assets on the broader equity and bond markets, according to preliminary roundup by Morningstar.

The group also benefited from strategic moves among managed futures funds that took advantage of rising Treasury prices. The Morningstar 1000 Hedge Fund Index rose 0.1%, and the currency-hedged Morningstar MSCI Composite Hedge Fund Index rose 0.6%, while most global equity markets—especially those in the United States—saw declines.

But even in cases when hedge funds outperformed equities, the outcome was only relative. The Morningstar U.S. Equity Hedge Fund Index fell 2.4%, about half as much as the Standard & Poor’s 500 for August. Funds that specialized in small-market cap stocks did bit better, relatively, of course. They dropped only 1.5%, versus the Russell 2000 Index’s 7.4% dive that month. 

Among bonds, investors kept flocking to Treasuries seeking solace from the volatile equity markets. Managed future funds that tracked price trends capitalized on that trend and traded out of the Treasury market, giving the Morningstar Global Trend Hedge Fund Index a 3.5% gain in August. Also, the Convertible Arbitrage Hedge Fund Index squeezed out a 1% gain, as convertible arbitrage strategies made the most of high volatility. But that doesn’t mean all hedge funds abandoned risk-aversion trades. Indeed, fixed-income-oriented strategies pushed the Global Debt Hedge Fund Index up 1.3%.

Morningstar reports fund flows differently from performance. It said the Corporate Actions Hedge Fund Index, had inflows of $2.3 billion year-to-date through July. Also, Global Non-Trend funds had inflows of $2.6 billion. Otherwise, most of the other hedge fund categories suffered outflows through July 2010, the research company said.