Morningstar Reports Hedge Fund Performance for June, Asset Flows Through May 2014

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Printer-friendly versionPrinter-friendly versionPDF versionPDF versionView PDF with Data TablesCHICAGO, July 31, 2014—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for June 2014 as well as estimated asset flows for May 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, increased 1.1% in June, along with global stock and bond indexes. The MSCI World Index climbed 1.8% while the Barclays Global Aggregate Bond Index rose 0.7%. The Morningstar MSCI Composite AW Hedge Fund Index has increased 3.7% for the year through June.“The second quarter was marked by volatility in small-cap and international equities,” A.J. D’Asaro, alternative strategies analyst for Morningstar, said. “However, despite increasing geopolitical tension in Ukraine and Gaza, almost all markets finished the month of June and the second quarter with substantial gains.”The emerging-markets rebound continued for the fourth straight month in June as global economic recovery seemed imminent. The Morningstar MSCI Emerging Markets Hedge Fund Index rose 1.3% in June, which brought its year-to-date increase to 4.0%. In contrast, the unhedged MSCI Emerging Markets Index advanced 2.7% in June, for a year-to-date increase of 6.1%. Hedge funds were able to mitigate volatility in the beginning of the year, falling only 1.9% in January, while the unhedged index fell 6.5%. However, the MSCI Emerging Markets Index has outperformed the hedge fund index on an absolute basis. The Morningstar MSCI Emerging Markets Hedge Fund Index and the MSCI Emerging Markets Index have risen 5.7% and 14.3%, respectively, for the 12 months ended June 2014.U.S. unemployment declined to its lowest level since September 2008, which buoyed North American equity hedge funds. The Morningstar MSCI North America Hedge Fund Index increased 1.9% in June, while the SandP 500 Index rose 2.1%. The Morningstar MSCI Small Cap Hedge Fund Index, which represents primarily small-cap long-short equity strategies, rose 2.4% in June, while the Russell 2000 Index climbed 5.3%. The Morningstar MSCI North America Hedge Fund Index and the Morningstar MSCI Small Cap Hedge Fund Index rose 2.6% and 1.9%, respectively, for the quarter ended June 2014, while the SandP 500 and Russell 2000 Indexes increased 5.2% and 2.1%, respectively, over the same period.Managed futures hedge fund strategies benefitted from an extension of price trends in June. The Morningstar MSCI Directional Trading Hedge Fund Index, which includes both discretionary and systematic futures-based strategies, increased 1.2%, and the Morningstar MSCI Systematic Trading Hedge Fund Index rose 0.7% in June. For the year-to-date period ended June 2014, the Morningstar MSCI Directional Trading Hedge Fund Index increased 0.9%, and the Morningstar MSCI Systematic Trading Hedge Fund Index declined 0.7% as hedge funds struggled to make up losses from the temporary reversal of investor sentiment in January 2014.Arbitrage strategies performed well in June. In the merger arbitrage and corporate activity space, deal flow was robust, and many so-called “inversion” deals were announced this year. The Morningstar MSCI Arbitrage Hedge Fund Index increased 0.7% in June, and is up 3.2% for the six months ended June 2014. The Morningstar MSCI Fixed Income Arbitrage Index also rose 0.5% in June, and is up 2.4% for the six months ended June 2014.In aggregate, single-strategy hedge fund assets in Morningstar’s database grew by a meager $78 million in May. Funds with less than a three-year track record gained a collective $806 million, while three-star Morningstar-rated funds lost $872 million. For the year through May, four- and five-star funds gained $4.6 billion, while funds with average or below-average track records shed $3.0 billion. Systematic futures hedge funds continued to see outflows, losing $794 million in May and $2.4 billion year-to-date through May. However, the pace of redemptions has slowed since 2013, when the category lost a staggering $10.7 billion. Long/short debt hedge funds experienced the greatest inflows in May, $641 million, as investors sought alternatives to the interest-rate risk of high-duration bonds. Asset flows in other hedge fund categories were unremarkable. For the period ended May 2014, single-strategy hedge funds in Morningstar’s database represented $344 billion of assets, with the largest categories—global macro, multistrategy, and U.S. long/short equity—making up approximately 50% of total assets.June returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of July 29, 2014. May asset flows are based on funds that reported as of July 15, 2014. 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 June increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, June 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 473,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 12 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 investment advisory subsidiaries and had approximately $169 billion in assets under advisement and management as of June 30, 2014. The company has operations in 27 countries. News Source : Morningstar Reports Hedge Fund Performance for June, Asset Flows Through May 2014
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