Morningstar Reports Hedge Fund Performance for February, Asset Flows Through January 2014

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Printer-friendly versionPrinter-friendly versionPDF versionPDF versionView PDF with Data TablesCHICAGO, Mar. 25, 2014—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for February 2014 as well as estimated asset flows for January 2014. The Morningstar MSCI Composite AW Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, rose 2.2% in February, along with global stock and bond markets. The MSCI World NR global stock index climbed 5.0%, while the Barclays Global Aggregate TR bond index rose 1.4% as optimism returned to markets following a risk-averse January. The Morningstar MSCI Composite AW Hedge Fund Index has increased 8.0% for the twelve months ended February 2014. “Hedge funds delivered as expected in February, capturing some of the market upside,” A.J. D’Asaro, fund analyst at Morningstar, said. “Event-driven, security selection, and short-bias hedge funds were among the best performers after taking advantage of market volatility in January to enter lucrative positions.”The Morningstar MSCI Event-Driven Hedge Fund Index advanced 3.1% in February, followed by the Morningstar MSCI Security Selection Hedge Fund Index, which climbed 3.0%. Short-bias hedge funds performed surprisingly well despite a rising market. The Morningstar MSCI Short Bias All Size Hedge Fund Index rose 4.4% in February, the largest increase of any Morningstar MSCI hedge fund index. For the trailing twelve-month period, the Morningstar MSCI Short Bias All Size Hedge Fund Index fell 9.1% as the SandP 500 Index rose 25.4%.Middling economic data from the United States, which some economists dismissed as weather-related, temporary halted further Fed tapering and buoyed U.S. stock markets. The Morningstar MSCI North America Hedge Fund Index increased 2.7% in February, while the SandP 500 Index soared 4.6%. The Morningstar MSCI Small Cap Hedge Fund Index, which represents small-cap long-short equity strategies, rose 3.7% in February, while the Russell 2000 Index surged 4.7%. The Morningstar MSCI North America Hedge Fund Index and the Morningstar MSCI Small Cap Hedge Fund Index rose 13.5% and 21.5%, respectively, for the twelve months ended February 2014, while the SandP 500 and Russell 2000 Indexes increased 25.4% and 31.6%, respectively, over the same period.Fixed income hedge funds also advanced after U.S. tapering expectations softened, but underperformed their unhedged peers as interest rates fell. The Morningstar MSCI Fixed Income Hedge Fund Index inched up 0.6% in February, underperforming the Barclays Global Aggregate TR Index, which climbed 1.4%. The duration-neutral Morningstar MSCI Fixed Income Arbitrage Hedge Fund Index also rose 0.6%. The Morningstar MSCI Fixed Income Hedge Fund Index and Morningstar MSCI Fixed Income Arbitrage Hedge Fund Index increased 4.3% and 3.6% for the twelve months ended February 2014, respectively, benefiting from hedged duration risk throughout 2013. In contrast, the unhedged Barclays Global Aggregate TR Index inched up only 1.7% in the trailing twelve-month period.Emerging markets hedge funds struggled in February due to ongoing concerns over a strengthening U.S. dollar, diminishing growth prospects, and political risk. The Morningstar MSCI Emerging Markets Hedge Fund Index rose 1.8%, unable to retrench January’s losses of 1.9%. The unhedged MSCI Emerging Markets Index advanced 3.3% in February, after a staggering loss of 6.5% in January. The Morningstar MSCI Emerging Markets Hedge Fund Index fell 1.1% for the twelve months ended February 2014, while the MSCI Emerging Markets Index plummeted 6.0%.Managed futures hedge fund strategies gave a strong showing in February, as January’s performance blip was not enough to divest entirely from net-long risk-asset positions. Moreover, short-term trend-following strategies fared well in currency markets. The Morningstar MSCI Directional Trading Hedge Fund Index, which includes both discretionary and systematic futures-based strategies, rose 1.7%, and the Morningstar MSCI Systematic Trading Hedge Fund Index advanced 1.5% in February. For the twelve months ended February 2014, the Morningstar MSCI Directional Trading Hedge Fund Index increased 2.1%, and the Morningstar MSCI Systematic Trading Hedge Fund Index declined 1.7% as hedge funds struggled with frequent reversals of investor sentiment in 2013.Arbitrage strategies performed well in February due to strong deal flow and a narrowing of convertible bond credit spreads. The Morningstar MSCI Arbitrage Hedge Fund Index rose 0.8% in February, and 5.2% for the trailing twelve-month period. Corporate merger activity continued at an elevated pace as companies rushed to take advantage of lower interest-rate financing and stronger balance sheets.In aggregate, single-strategy hedge fund assets were stable in January, as investors pulled assets from globally focused hedge funds and rebalanced to other strategies. Global long/short equity hedge funds experienced outflows of $505 million, spurred by a strengthening dollar and increasing political risks in emerging markets. Multistrategy hedge funds received the largest inflows of $906 million in January, followed by long-only equity hedge funds with inflows of $388 million. Systematic futures hedge fund assets remained stable in January, after losing a staggering $10.7 billion in 2013. For the trailing twelve months, single-strategy hedge funds have lost $9.1 billion, with the majority of outflows coming from systematic futures hedge funds. Funds with no rating raised $726 million in assets in January, while rated funds shed $704 million.February returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of Mar. 22, 2013. January asset flows are based on funds that reported as of Mar. 21, 2013. 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 20,000 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 individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 446,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 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 had approximately $159 billion in assets under advisement and management as of Dec. 31, 2013. The company has operations in 27 countries.

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