Morningstar Reports Hedge Fund Performance for January, Asset Flows Through 2013

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Printer-friendly versionPrinter-friendly versionPDF versionPDF versionView PDF with Data TablesCHICAGO, Feb. 24, 2014—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for January 2014 as well as estimated asset flows for 2013. The Morningstar MSCI Composite AW Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, fell 0.9% in January, outperforming global stock markets. The MSCI World NR global stock index declined 3.7%, while the Barclays Global Aggregate TR bond index rose 1.1% as the U.S. Federal Reserve tapered bond purchases less than expected. The Morningstar MSCI Composite AW Hedge Fund Index has increased 6.2% for the twelve months ended January 2014. “Hedge funds protected investors from major losses during January’s sell-off,” A.J. D’Asaro, fund analyst at Morningstar, said. “Poor economic data from the United States, higher interest rates, and a strengthening U.S. dollar following tapering left global stocks with losses, but hedge funds were able to sidestep most of the decline.”Investors fled emerging markets due to concern over a strengthening U.S. dollar, diminishing growth prospects, and political risk. The Morningstar MSCI Emerging Markets Hedge Fund Index was hit particularly hard, with a decline of 1.9% in January. However, hedge funds sidestepped major losses in the unhedged MSCI Emerging Markets Index, which had more exposure to currency declines, and sank 6.5% as a result. The Morningstar MSCI Emerging Markets Hedge Fund Index has fallen 1.5% for the twelve months ended January 2014, while the MSCI Emerging Markets Index has plummeted 10.2%.U.S. equity-based hedge fund strategies benefited from hedges on equity markets in January and eked out slightly positive returns. The Morningstar MSCI North America Hedge Fund Index increased 0.1% in January, while the SandP 500 Index sank 3.5%. The Morningstar MSCI Small Cap Hedge Fund Index, which represents small-cap long-short equity strategies, rose 0.4% in January, while the Russell 2000 Index fell 2.8%. The Morningstar MSCI North America Hedge Fund Index and the Morningstar MSCI Small Cap Hedge Fund Index have risen 10.9% and 17.2%, respectively, for the twelve months ended January 2014 while the SandP 500 and Russell 2000 Indexes have increased 21.5% and 27.0%, respectively.Fixed income hedge funds advanced after U.S. tapering was revealed to be milder than expected. The Morningstar MSCI Fixed Income Hedge Fund Index inched up 0.7% in January, underperforming the Barclays US Aggregate Bond Index, which climbed 1.5%. The duration-neutral Morningstar MSCI Fixed Income Arbitrage Hedge Fund Index also rose 0.3%. The Morningstar MSCI Fixed Income Hedge Fund Index and Morningstar MSCI Fixed Income Arbitrage Hedge Fund Index have increased 4.0% and 3.1% for the twelve months ended January 2014, respectively, benefiting from hedged duration risk throughout 2013. In contrast, the unhedged Barclays Global Aggregate TR Index decreased 1.1% in January and has fallen 0.7% for the trailing twelve-month period.Managed futures hedge fund strategies suffered as positive two-month trends in risk assets reversed sharply. The Morningstar MSCI Directional Trading Hedge Fund Index, which includes both discretionary and systematic futures-based strategies, fell 1.6%, and the Morningstar MSCI Systematic Trading Hedge Fund Index slumped 2.3% in January. For the twelve months ended January 2014, the Morningstar MSCI Directional Trading Hedge Fund Index decreased 0.7%, and the Morningstar MSCI Systematic Trading Hedge Fund Index declined 4.5% as hedge funds struggled with frequent reversals of investor sentiment in 2013.Arbitrage strategies performed well in January partly due to strong deal flow, which included Liberty Media’s proposed $20 billion acquisition of minorities at Sirius XM Holdings and Suntory’s $14 billion acquisition of Beam. The Morningstar MSCI Arbitrage Hedge Fund Index rose 0.5%, and 4.6% for the trailing twelve-month period. Corporate merger activity continued to pick up as companies rushed to take advantage of low interest-rate financing.In aggregate, single-strategy hedge funds experienced net outflows of $3.1 billion in December. Multistrategy hedge funds led the losses with outflows of $2.0 billion, followed by systematic futures with outflows of $787 million. Systematic futures hedge funds have bled assets for four straight months, summing to a staggering loss of $10.7 billion for 2013. Event-driven hedge funds received the largest inflows of $294 million in December, followed by long-short debt hedge funds with inflows of $235 million, as investors sought low-risk alternatives to traditional fixed income. For the year, single-strategy hedge funds lost $6.9 billion, with the majority of outflows coming from systematic futures hedge funds. In addition, long-only equity hedge funds and global long-short equity hedge funds lost $2.4 billion and $1.4 billion, respectively, in 2013. Funds with no rating raised $7.8 billion in assets in 2013, while rated funds shed $14.7 billion.January returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of Feb. 19, 2013. December asset flows are based on funds that reported as of Feb. 14, 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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