(Dow Jones) Nearly every hedge fund strategy lost money in May, although most fared better than the overall stock market, according to two industry indexes released Monday.

Hedge Fund Research's HFRI Fund Weighted Composite Index dropped 2.26% in May, the index's worst month since November 2008. Hennessee Group LLC's Hennessee Hedge Fund Index had the average fund down 2.99%, its worst drop since October 2008.

Both indexes are now up less than 2% in 2010.

Hennessee cofounder Charles Grandate said, "Hedge-fund managers avoided significant losses [in May] and outperformed traditional benchmarks on a relative basis due to conservative exposures, hedging and short positions."

Stocks have been on the skids of late amid financial turmoil. The "flash crash," as well as mounting concern over European economies, has left investors leery.

For May, HFR said the equity hedge group was the worst performing among hedge funds, dropping 3.7%, the biggest drop since September 2008 amid stocks' swoon.

Some funds run by John Paulson's Paulson & Co. were among those hit hard in May, even though most of Paulson's funds are up this year, and all investors in the "gold share" class of its funds have made money. The Paulson Advantage Fund was down 4.9% in May, and the Paulson Recovery Fund--which is dedicated to Paulson's belief that the U.S. economy is recovering--lost 8.67% for the month. That fund was still up more than 14% through the end of May, according to a person familiar with the funds. Investing in the gold share class of funds means investor money is based on the price of gold, as opposed to the U.S. dollar.

Other big-name fund managers were down about as much as the hedge fund indexes, like Steven A. Cohen's SAC Capital International, which lost 2.3% in May and is still up 5% this year, according to a person familiar with the numbers.

Last year, hedge funds posted their best performance in a decade, with the Hennessee index jumping 25% and HFR Index gaining 20%, as the industry matched the performance of the broader stock market.

Hedge funds that short the markets did expectedly well, with HFR's short-bias index up 7%.

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