2018 was a losing year for the average hedge fund, but it did mark a rare outperformance compared to U.S. stocks.

The average fund fell 4.07% last year, according to research firm HFR’s Fund Weighted Composite Index, while an asset-weighted version of the index fell 0.84%. That beat a return, including dividends, of negative 4.39% for the S&P 500

SPX, +0.97%

It also marked the first time the hedge-fund index outperformed since 2008, when it fell 19.03% versus a 37% negative return for the S&P 500, according to FactSet data.

The outperformance followed a volatile December that saw gains for defensive macro hedge funds and quantitative, trend-following strategies. The HFRI Fund Weighted Composite Index fell 1.97% in December, topping U.S. equities and most global and regional equity indexes by more than 700 basis points, HFR said, marking the largest monthly outperformance since February 2009. The firm said 93% of HFRI constituents outperformed the S&P 500 in December. Including dividends, the S&P 500 posted a negative return of 9.03% in December.

Hedge funds charge high fees that they say are justified by their ability to outperform the market when conditions turn volatile. But a crowded field and an inability over much of the past decade to outperform the S&P 500 — and cheap, passively managed, index-tracking products — has led to criticism and a shakeout in the industry.

For high-profile fund managers, 2018 was a mixed bag. Bridgewater Associates, founded by billionaire investor Ray Dalio, saw its Pure Alpha Strategy Fund post a 14.6% gain in 2018. In contrast, activist hedge-fund firm Third Point LLC, founded by Daniel Loeb, lost about 11% last year, its worst performance since 2008.

Read: What regular investors can learn from Bridgewater’s stellar 2018 performance

For the industry, the December results, however, represented a “milestone,” said Kenneth Heinz, president of HFR, “with the HFRI exhibiting not only the highest level of outperformance of steep equity market losses in nearly a decade, but with certain strategies posting positive performance through the worst equity market decline since February 2009.”

He said the December gains and defensive outperformance “are likely to not only fundamentally change the context of hedge fund performance in 2018, but attract investor capital under the expectation of these volatile, powerful trends continuing through 2019.”

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