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Morningstar MSCI Composite Hedge Fund Index slid 0.1% in November (-2.9% YTD)

Thursday, December 22, 2011

Mallory Horejs
Opalesque Industry Update — Morningstar, Inc., a leading provider of independent investment research, today reported preliminary hedge fund performance for November 2011 as well as estimated asset flows through October.

The Morningstar MSCI Composite Hedge Fund Index, an assetweighted composite of nearly 1,000 hedge funds in the Morningstar database, slid 0.1% in November, holding up much better than the MSCI World NR Stock Index's 2.4% decline. Overall, most hedge fund strategies provided downside protection relative to the equity markets.

"In contrast to strong market performance last month, global equities struggled in November as ongoing debt woes and weakening macroeconomic data plagued investor sentiment," said Mallory Horejs, alternative investments analyst at Morningstar. "Skittish investors sought out safe-haven assets such as gold and Treasuries, and the U.S. dollar appreciated against almost every major currency."

Emerging market hedge funds were among the hardest hit in November as disappointing economic reports renewed fears of a growth slowdown in China. The Morningstar MSCI Emerging Markets Hedge Fund Index sank 3.2% against the MSCI EM Stock Index's 6.7% nosedive. Asian-oriented funds also took a beating and the Morningstar MSCI Asia Pacific Hedge Fund Index fell 2.9 % against the MSCI AC Asia Stock Index's 6.5% plummet.

Despite government reshufflings in Greece, Italy, and Spain, as well as eurozone unemployment reaching its highest point since June 1998, European-focused hedge funds managed to provide relative shelter. The Morningstar MSCI Europe Hedge Fund Index slid only 0.8%, compared to the MSCI Europe Stock Index's 4.5% tumble.

U.S. equity investors fared much better in November with both the Morningstar MSCI North America Hedge Fund Index and S&P 500 Index slipping just 0.2%. The Super Committee's failure to reach a budget accord initially weighed down the index, but U.S. stocks shrugged off fears and rallied at month end following the announcement of a coordinated liquidity injection into the global banking system. U.S. consumer confidence also rose to a four-month high following better-than-expected macroeconomic data and a strong start to holiday shopping sales.

Most fixed-income oriented hedge funds followed equities downward in November. The Morningstar MSCI Long-Short Credit Hedge Fund Index declined 0.5% against the BarCap Global Aggregate's 1.7% fall. Hedge funds employing riskier credit strategies also struggled amidst widening spreads and declining risk appetites. The Morningstar MSCI Specialist Credit and Morningstar MSCI Distressed Securities Hedge Fund Indexes fell 0.5% and 0.8%, respectively. However, both held up better than the BarCap Global High Yield Index, which sank 3.1% for the month.

Relative-value strategies managed to stay afloat and eked out small increases through November's ups and downs. The Morningstar MSCI Arbitrage Hedge Fund Index, which includes funds that seek to profit from pricing discrepancies, ended the month up 0.1%. Some sub-strategies in this index fared even better, with the Morningstar MSCI Fixed Income Arbitrage and Morningstar MSCI Merger Arbitrage Hedge Fund Indexes climbing 0.4% and 0.2%, respectively. Short-biased strategies also delivered with the Morningstar MSCI Short Bias Hedge Fund Index advancing 1.4%.

Hedge funds in Morningstar's database leaked $2.1 billion in October, the largest outflows seen since July 2009. Global macro hedge funds received the most redemptions, with the category experiencing outflows of $2.2 billion for the month. The category has bled $5.5 billion over the trailing 12 months. Funds in the global long/short equity and multistrategy categories also experienced sizeable outflows, $436 and $329 million, respectively. The systematic futures category was one of the few to net assets in October, pulling in $1.1 billion for the month. Diversified arbitrage hedge funds also enjoyed inflows of $499 million.

Funds of funds in Morningstar's database also suffered from massive redemptions in October, leaking $2.2 billion. Investors have pulled $4.4 billion from funds of funds for the year to date through October.

November returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of Dec. 19, 2011. October asset flows are based on funds that reported as of Dec. 16, 2011. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar Direct SM, the company’s global research platform for institutions.

Press release and performance tables: Source


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