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Morningstar Reports Hedge Fund Performance for March and First Quarter, Asset Flows for February
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CHICAGO, April 23, 2012—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for March and for the first quarter as well as estimated asset flows through February 2012. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, eked out a 0.1% rise in March, ending the first quarter up 3.3%.

"After a strong start in the first two months of 2012, hedge funds lost steam in March and presented a mixed picture," said Terry Tian, alternative investments analyst with Morningstar. "While many U.S. equity strategies delivered positive returns, emerging markets, managed futures, and currency strategies suffered losses."

The U.S. stock market continued to rally in March—the SandP 500 Index and the Russell 2000 Index rose 3.3% and 2.6% for the month, respectively, finishing the first quarter up 12.6% and 12.4%, respectively. The Morningstar MSCI North America Hedge Fund Index, which includes hedge funds investing primarily in U.S. stocks, rose only 0.5% in March and 5.5% for the first quarter. Hedge funds that invested in smaller-capitalization stocks, however, outperformed. The Morningstar MSCI Small and Mid Cap Hedge Fund Index advanced 1.1% in March, finishing the first quarter up 10.8%.

Emerging-markets oriented hedge funds struggled in March due to weaker-than-expected economic data from China. The MSCI China NR Index dropped 6.9% and the MSCI Emerging Markets NR Index fell 3.3% in March. The Morningstar MSCI Emerging Markets Hedge Fund Index declined 0.9% for the month.

March proved to be another difficult month for managed futures strategies, as the lack of trends in most markets (such as crude oil and soft commodities) and reversals in some others (precious metals and currencies, for example) contributed to losses. The Morningstar MSCI Systematic Trading Hedge Fund Index declined 1.9% in March, ending the first quarter down 0.4%.

Currency strategies experienced significant losses in March—the Morningstar MSCI Currencies Hedge Fund Index plummeted 4.9%, making it the worst-performing Morningstar MSCI Hedge Fund Index for the month. Commodity currencies, such as the Australian Dollar, Norwegian Krone, and Canadian Dollar, responded to the renewed concerns over China's growth and fell sharply in March, reversing their upward trends since the beginning of the year.

In February, single-manager hedge funds saw outflows of $708 million, while funds of hedge funds gathered $49 million after eight consecutive months of outflows. The U.S. long/short equity category experienced the heaviest redemptions among all single-manager categories, bleeding $1.2 billion. The diversified arbitrage and long/short debt categories received inflows of $482 million and $348 million, respectively.

March returns for the Morningstar MSCI Hedge Fund Indexes and February asset flows are based on funds that reported as of April 18, 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 approximately 375,000 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 $180 billion in assets under advisement and management as of Dec. 31, 2011. The company has operations in 27 countries.
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