BOSTON (Reuters) - For some of the hedge fund industry's titans, including Nelson Peltz and William Ackman, 2016 is starting with heavy losses as big bets on General Electric (>> General Electric Company), Valeant (>> Valeant Pharmaceuticals Intl Inc), and Mondelez (>> Mondelez International Inc) have been battered by the market's abrupt drop.

But as a group, hedge funds have navigated the sharp sell-off relatively smoothly, finally boasting better performance than the equity markets they have trailed for the last years.

With the Standard & Poor's 500 index tumbling another 3 percent on Wednesday to push the stock market benchmark down 10 percent for the year-to-date, most investors are feeling pain.

Peltz's Trian Fund Management lost nearly 10 percent in the first two weeks of 2016 while Ackman's Pershing Square Holdings, coming off a 20 percent loss in 2015, tumbled 11.4 percent through January 12, investors familiar with the numbers said.

More broadly though, hedge funds, which oversee $2.9 trillion in assets for pension funds, governments, and wealthy private investors, have lost only 2.5 percent, Hedge Fund Research data show, besting the benchmark stock indices' double digit losses.

The outperformance from hedge funds may be acting as a ballast for the market overall, as those managers seek opportunities in falling shares rather than fleeing, according to some strategists.

"This is going to be a more volatile period of time and there will be excessive swings in the market," said Charles Krusen whose Krusen Capital allocates to hedge funds, but "that will also provide opportunities especially for hedge funds that can act as a buffer when the markets go down," he added.

Goldman Sachs analysts said global hedge funds lost less than 1 percent last week when the Dow Jones Industrials Index tumbled into correction territory, hurt by falling energy prices, China's currency devaluation and fears of weaker global economic growth.

This year's best performing hedge fund, according to industry tracker HSBC, is the Horseman Global fund which is up 10.49 percent through Jan. 13 after having gained 20.4 percent last year.

Early winners this year also include Millennium Management, the $34 billion fund run by Israel Englander which ended 2015 with a 12.7 percent gain. Kenneth Griffin's $25 billion Citadel, which gained 14.3 percent last year, is up again, as is Jacob Gottlieb's $8 billion Visium Asset Management, said people who have seen their performance numbers.

Even Lee Ainslie's stock-oriented Maverick Capital, which gained 16 percent last year, was down only 0.35 percent early in the month, sidestepping the dramatic sell off so far. Similarly BlueMountain's Long Short Equity Fund LP slipped only 0.37 percent this year after ending 2015 up 2.79 percent.

Analysts at Credit Suisse's prime services division said hedge funds' relatively low exposure to stocks, which they say is near a two-year low, plus smart sector bets, helped even stock-focused fund managers absorb January's equity rout, with estimated losses of only 1.2 percent to 1.6 percent through the end of last week.

Hedge funds have lost less money in bets on financial stocks, industrial stocks, and consumer discretionary stocks, Credit Suisse found. Since the early part of the month, hedge funds have seen their long bets underperform a bit, but short positions have outperformed, the firm said.

For some, tumbling markets are putting their favorite names on sale, fund managers said.

"The market is having a temper tantrum, nothing more, so I view this turmoil as a buying opportunity," said Whitney Tilson, who runs hedge fund Kase Capital. She noted, however, that prices are still not as cheap as they were in 2008 or 2011.

Indeed, some managers are saying that they are trading in and out more actively these days as they are having a tough time getting the stocks at the prices they want.

No matter how small the losses are this year, managers are acknowledging the tough environment and their investors are keeping a close eye on movements, urging managers to make sure they are well-hedged. David Einhorn, whose Greenlight Capital is widely watched, reassured investors he is concentrating on better returns in 2016 after losing 20 percent last year.

Investors who allocate money to hedge funds on behalf of wealthy clients have said they could make more changes by terminating some managers in the months ahead.

Last year, they pulled $1.5 billion out of hedge funds in the fourth quarter, marking the first time the industry saw net redemptions since the fourth quarter of 2011, Hedge Fund Research data show.

But for now, they see little room to exit hedge funds altogether.

"Seven years post Lehman, investors may suffer from the seven-year itch to stray from their investment discipline. However, the fact that there is no other obvious alternative to put your money may inadvertently protect some investors from themselves," said Putri Pascualy, who invests in credit-oriented hedge funds at investment firm PAAMCO.

(with additional reporting by Lawrence Delevingne in New York; Editing by Alan Crosby)

By Svea Herbst-Bayliss