|Morningstar Reports Hedge Fund Performance for June, Asset Flows Through May|
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CHICAGO, July 23, 2012—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for June 2012 as well as estimated asset flows through May. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, fell 0.9% in June, while the MSCI World Stock Index soared 5.1%.
"Hedge fund strategies came up short in June despite strong overall equity market performance," said Mallory Horejs, alternative investment analyst for Morningstar. "Trend-following funds were hit especially hard due to several mid-month price-trend reversals across asset classes."
The Morningstar MSCI Systematic Trading Hedge Fund Index, which includes funds that trade liquid global futures, options, and foreign-exchange contracts largely according to momentum strategies, sank 3.0% in June, its largest decline in eight months. Longer-term price-trend trading proved difficult due to sharp mid-month and month-end reversals across global equity markets. Shifting investor sentiment also led to sharp reversals across currency markets, with the Euro appreciating notably against the U.S. dollar at month end following positive developments at the European Union Summit. The Morningstar MSCI Currencies Hedge Fund Index managed to stay afloat though, inching up 0.1% for the month.
International equity-oriented hedge fund strategies fared much better in June, but significantly lagged the unhedged stock markets. The MSCI Europe Stock Index surged 7.9% after pro-austerity parties won Greek elections and European leaders announced the creation of a single banking supervisory body to address the region's debt crisis. The Morningstar MSCI Europe Hedge Fund Index, by comparison, rose only 0.4%. The Morningstar MSCI Emerging Markets Hedge Fund Index also stalled, climbing only 0.2% against the Morningstar MSCI Emerging Market Stock Market Index's 3.9% jump.
Hedge funds investing in North American equities also largely underperformed the broad stock markets—the Morningstar MSCI North America Hedge Fund Index rose only 0.6% while the SandP 500 Index jumped 4.1% after the Fed announced it would continue Operation Twist until the end of the year. Smaller-capitalization strategies also lagged, with the Morningstar MSCI Small Cap Hedge Fund Index increasing only 1.1% against the Russell 2000 Stock Index's 5.0% ascent. Short-selling equity strategies posted the worst performance in June. The Morningstar MSCI Short Bias Hedge Fund Index was down 4.3% for the month and 9.6% for the year through June, more than any other Morningstar MSCI hedge fund index.
Fixed income performance was mixed in June as investors moved to riskier asset classes. The Barclays US Aggregate Bond Index fell flat for the month while the Barclays Global High Yield Index rose 2.8%. Despite a rally in high yield and leverage loans, the Morningstar MSCI Specialist Credit and Morningstar MSCI Long-Short Credit Hedge Fund Indexes posted small declines of 0.2% and 0.3%, respectively. The Morningstar MSCI Fixed Income Arbitrage Hedge Fund Index rose a slight 0.8%.
Single-manager funds in Morningstar's Hedge Fund database netted $1.8 billion in May, marking the fourth consecutive month of inflows. Credit strategies were in high demand and funds in the long/short debt and debt arbitrage categories received the most inflows of $385 million and $367 million, respectively. Multistrategy hedge funds also fared well, netting inflows of $363 million in May, while fund of funds overall leaked roughly $658 million. Morningstar's Europe long/short equity hedge fund category experienced the largest net redemptions of all single-manager categories, bleeding $169 million.
June returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of July 16, 2012. May asset flows are based on funds that reported as of July 17, 2012. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar DirectSM, the company’s global research platform for institutions.
Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. Morningstar calculates hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class. These indexes are not investible.
This release is not intended to be an offer or solicitation for the sale of hedge funds. The information is not warranted to be accurate, complete, or timely. When considering hedge funds, investors should consider various risks, including the fact that some products engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager. The high degree of leverage that is often obtainable in trading can lead to large losses as well as gains. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 380,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $190 billion in assets under advisement or management as of March 31, 2012. The company has operations in 27 countries.