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Morningstar MSCI Composite Hedge Fund Index up 1.9% in July and 3.7% YTD, sector leaked $6.5bn in June

Monday, August 20, 2012
Morningstar, Inc., a leading provider of independent investment research, today reported preliminary hedge fund performance for July as well as estimated asset flows through June 2012. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, was up 1.9% in July and 3.7% for the year to date return through July 2012.

"Most hedge funds successfully weathered through a volatile July, beating the broad stock market indexes.” said Terry Tian, alternative investments analyst with Morningstar. “Managed futures and currency strategies delivered particularly strong performance.”

Managed futures strategies were some of the biggest winners in July, as the Midwest's worst drought in 25 years resulted in strong and persistent upward trends in major agriculture commodities, such as soybeans, wheat, and corn. The Morningstar MSCI Systematic Trading Hedge Fund Index, which includes managed futures funds, jumped 4.3% in July, bringing its year-to-date performance to 2.7%.

Currency hedge funds benefited from their short positions on the Euro. Despite a late month rebound, the Euro depreciated substantially against the U.S. dollar throughout July, reaching a two-year low. The Morningstar MSCI Currencies Hedge Fund Index rose 3.9% in July, making it one of the best-performing Morningstar Hedge Fund Indexes for the month.

Unlike currency or commodity markets, the U.S. and the European stock markets were directionless until the president of the European Central Bank vowed to do ‘whatever it takes’ to save the Euro on July 25.

The late month rally drove the S&P 500 TR Index and the MSCI Europe NR Stock Index into the black, rising 1.4% and 1.1%, respectively. North America and Europe focused hedge funds underperformed the stock markets due to their short positions—the Morningstar MSCI North America Hedge Fund Index and the Morningstar MSCI Europe Hedge Fund Index rose 0.4% and 0.2%, respectively. Small capitalization stocks underperformed large capitalization stocks in July, as evidenced by the 1.4% decline of the Russell 2000 TR Index. The Morningstar MSCI Small Cap Hedge Fund Index was one of the few hedge fund indexes that posted a decline in July, dropping 0.8%.

In June, single-manager hedge funds and funds of hedge funds in Morningstar's Hedge Fund Database leaked $4.4 billion and $2.1 billion, respectively. The Europe Long/Short Equity category experienced the heaviest redemptions among all single-manager categories, bleeding $1.8 billion. The Long/Short Debt and Diversified Arbitrage categories received inflows of $277 million and $105 million, respectively.

July returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of August 16, 2012. June asset flows are based on funds that reported as of August 15, 2012. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar Direct SM , 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.

(press release)

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $186 billion in assets under advisement and management as of June 30, 2012. The company has operations in 27 countries. www.morningstar.com


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