Industry Updates

Morningstar 1000 Hedge Fund Index estimated performance for February +0.3%, January asset outflows totaled more than $2bn

Wednesday, March 24, 2010

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Morningstar Reports Hedge Fund Performance for February, Asset Flows Through January Opalesque Industry Updates - Morningstar, Inc., a provider of independent investment research, reported preliminary hedge fund performance for February and asset flows through January. The Morningstar 1000 Hedge Fund Index and the currency hedged Morningstar MSCI Hedge Fund Index rose 0.3% and 0.7%, respectively in February, while most major equity markets rallied. The exception was Europe—both the MSCI Europe NR Stock Index and the Morningstar Europe Equity Hedge Fund Index fell, 2.0% and 1.6%, respectively. Concerns over the financial health of Greece and the stability of the Euro drove down European equities early in the month.

"February was a difficult month for hedge funds to navigate," said Nadia Papagiannis, Morningstar alternative investment strategist. "Swings in risk aversion and mixed economic signals created problems for many hedge fund strategies."

U.S. stock markets rose mid-month when the Federal Reserve indicated that it planned to keep interest rates low. Small cap U.S. stocks fared better than larger cap stocks in February, although the Morningstar US Small Cap Equity Hedge Fund Index performed worse than the Morningstar U.S. Equity Hedge Fund Index at 1.1% and 2.5%, respectively.

Emerging market equities and Japanese stocks fell slightly in February in response to tighter Chinese monetary policy. The Morningstar MSCI Emerging Markets and the Morningstar MSCI Japan Hedge Fund Indexes both declined 0.7% for the month. Increased mergers and acquisitions deal activity in Asia helped the Morningstar Corporate Actions Hedge Fund Index to climb 1.9% in February.

Turmoil in the credit markets during the month adversely affected the Morningstar Debt Arbitrage and Distressed Securities Hedge Fund Indexes, with declines of 0.7% and 0.2% for the month, respectively, while the Morningstar Global Debt Hedge Fund Index saw a small rise of 0.4%. The Morningstar Convertible Arbitrage Hedge Fund Index also ended the month slightly positive, at 0.2%, as a sharp drop in stock market volatility and low levels of new issues dampened returns.

Funds in the Morningstar Global Trend and Global Non-Trend Hedge Fund Indexes, which trade derivatives in stocks, bonds, commodities, and currency markets, ended the month virtually flat, at 0.1% and 0.3%, respectively. While some of the funds in these indexes found opportunities in bonds and currencies, for example, U.S. Treasury bonds and the U.S. dollar relative to the Euro, reversals in stock and commodity markets, such as gold and oil, during February caused problems for funds following longer-term price trends.

Hedge funds in Morningstar's database saw outflows for a second consecutive month in January, totaling more than $2 billion. While investors pulled away from funds across most of Morningstar's hedge fund categories, funds in the Global Non Trend category experienced inflows of approximately $0.6 billion in January.

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