Hedge fund performance declined last month, but continued to outperform broader stock markets.

According to the Hennessee Hedge Fund Index, which is compiled monthly by Hennessee Group. hedge fund performance fell 0.55% in August, as the Dow Jones Industrial Average declined 4.3%, its worst August since 2001; the Standard & Poor's 500 fell 4.7%; and the Nasdaq Composite dropped 6.2%.

Market conditions have been volatile this year. Initially, this was attributed to the “flash crash,” which occurred in May, but conditions have remained rocky.

But the Hennessee index remains in positive territory this year, up 1.32% through the first eight months of the year. The index, which in May saw its biggest decline since October 2008, posted its fourth-worst first half since 1987 continued to outperform the broader markets, which were all down at least 4% through the first eight months of the year.

"Managers remain cautious given the global economic uncertainty, though the consensus is that we will likely avoid a double-dip recession," said Hennessee Group co-founder Charles Gradante. "It was also encouraging to see that 43% of hedge funds reporting were able to generate positive performance in August as markets started to respond more to fundamentals."

Last year, hedge funds posted their best performance in a decade, with the Hennessee index rose 25%, as the industry matched the performance of the broader stock market.