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

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Printer-friendly versionPrinter-friendly versionView PDF with Data TablesCHICAGO, June 23, 2014—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for May 2014 as well as estimated asset flows for April 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 1.6% in May, along with global stock and bond indexes. The SandP 500 rose 2.4% while the MSCI World climbed 2.0%. The Morningstar MSCI Composite AW Hedge Fund Index has increased 2.9% for the year through May.“May was a strong month for risky assets,” A.J. D’Asaro, fund analyst at Morningstar, said. “Emerging markets advanced rapidly, led by Asia, and the SandP 500 closed the month at an all-time high of 1,924.”The emerging markets rebound, which was already underway in March and April, accelerated in May, benefiting emerging market hedge funds. In late 2013 and early 2014, a strengthening U.S. dollar and increased perception of political risk caused broad losses in the same funds. The Morningstar MSCI Emerging Markets Hedge Fund Index rose 2.3% in May, which brought its year-to-date increase to 3.0%. In contrast, the unhedged MSCI Emerging Markets Index advanced 3.5% in May, for a year-to-date increase of 3.4%, finally retrenching its staggering loss of 6.5% in January. Hedge funds were able to mitigate volatility in the beginning of the year, falling only 1.9% in January. However, the MSCI Emerging Markets Index has outperformed the hedge fund index over time. The Morningstar MSCI Emerging Markets Hedge Fund Index and the MSCI Emerging Markets Index have risen 0.5% and 4.3%, respectively, for the 12 months ended May 2014.European hedge funds advanced in May as market participants speculated on European Central Bank quantitative easing. The Morningstar MSCI Europe Hedge Fund Index rose 2.0% in May, and is up 5.2% for the year to date through May. The Morningstar MSCI North America Index increased on the same news, and rose 0.8% in May. The Morningstar MSCI Europe Hedge Fund Index and the Morningstar MSCI North America Index have increased 10.0% and 11.2%, respectively, for the 12 months ended May 2014.Managed futures hedge fund strategies faced headwinds in commodities, but were buoyed by a concurrent rally in global stocks and bonds. The Morningstar MSCI Directional Trading Hedge Fund Index, which includes both discretionary and systematic futures-based strategies, rose 0.9% in May, and the Morningstar MSCI Systematic Trading Hedge Fund Index rose 1.3%, while the Dow Jones UBS Commodity Index fell 2.9%. For the 12 months ended May 2014, the Morningstar MSCI Directional Trading Hedge Fund Index increased 0.9%, and the Morningstar MSCI Systematic Trading Hedge Fund Index declined 2.0% as hedge funds struggled with frequent reversals of investor sentiment near the end of 2013.Arbitrage strategies performed well in May. In the merger arbitrage and corporate activity space, deal flow grew modestly as companies sought to spend excess cash on acquisitions. The Morningstar MSCI Arbitrage Hedge Fund Index increased 0.7% in May, and is up 5.9% for the 12 months ended May 2014. The Morningstar MSCI Event-Driven Index, which is made up of arbitrage-like strategies related to non-merger corporate events, also rose 0.7% in May, and is up 9.1% for the 12 months ended May 2014.In aggregate, single-strategy hedge fund assets in Morningstar’s database grew by an estimated $195 million in April. Four- and five-star Morningstar rated funds gained a collective $206 million, while funds with average, below average, or very short track records lost a modest amount. Systematic futures hedge fund assets continued their long decline in April, with $658 million in outflows. U.S. long/short equity hedge funds also faced significant outflows of $674 million. Systematic futures were the hedge fund industry’s biggest loser over the past 12 months, with a staggering $9.6 billion in outflows. Long/short debt and multistrategy hedge funds experienced the greatest inflows in April, of $557 million and $1.1 billion, respectively, as investors sought alternatives to the interest rate risk of high duration bonds. Over the past 12 months through April, single-strategy hedge funds in Morningstar’s database have lost $4.4 billion, with the majority of outflows coming from systematic futures hedge funds. May returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of June 16, 2014. April asset flows are based on funds that reported as of June 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 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 456,000 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 registered investment advisor subsidiaries and had approximately $164 billion in assets under advisement and management as of March 31, 2014. The company has operations in 27 countries.
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