New York (HedgeCo.net) – September closed out a profitable quarter for hedge funds. The Morningstar 1000 Hedge Fund Index rose 5.2% in September and 7.6% over the third quarter, while the currency-hedged Morningstar MSCI Composite Index climbed 2.8% for the month and 4.3% for quarter.
“Hedge funds ended the third quarter with a bang,” said Nadia Papagiannis, alternative investment strategist for Morningstar. “All strategies profited, as equities, bonds, commodities, and currencies rallied.”
U.S. stocks, as measured by the S&P 500 Index, experienced their best September in 71 years, on the news of more potential easing by the Federal Reserve and better than expected economic data with payrolls and manufacturing. The Morningstar U.S. Equity Hedge Fund Index rose 6.0% in September against the S&P 500’s 8.9% climb. European stocks, as measured by the MSCI Europe NR Index, increased 11.0%, as positive GDP and sentiment data outweighed credit concerns over Ireland and Portugal. The Morningstar Europe Equity Hedge Fund Index rose 7.8% during the month.
In mid September, the Federal Reserve’s statements suggesting continued quantitative easing triggered a U.S. dollar freefall against several currencies and near-record lows in two- and five-year Treasury yields. This provided trading opportunities for funds in Morningstar’s Debt Arbitrage and Global Non Trend Hedge Fund Indexes, which gained 3.6% and 4.0%, respectively in September, and 6.6% and 4.6% for the quarter. The U.S. dollar’s plunge contributed to the rise in several commodities, including gold, silver, sugar, and cotton. Funds in Morningstar’s Global Trend Hedge Fund Index, which profit from price trends in commodity futures and other derivatives, saw a 6.1% rise in September, their best month since early 2008.
Hedge fund of funds in the Morningstar’s database also posted their best results since 2008. The Morningstar Hedge Fund of Funds Index outpaced the Morningstar Multi-Strategy Hedge fund index by almost a full percentage point in the third quarter of 2010, after having underperformed in the previous six quarters.
In addition to a favorable market environment in September, hedge funds also appear to be back in favor with investors. After two months of net outflows, single-manager hedge funds in Morningstar’s database saw $1.3 billion in inflows in August. Convertible arbitrage hedge funds attracted the most assets in August, $773 million. For the year to date through August, hedge funds in the database have leaked $4.4 billion, although funds in the Global Non-trend, U.S. Equity, and Corporate Actions categories experienced inflows of $3.3 billion, $1.4 billion, and $1.2 billion, respectively.
Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. The Morningstar 1000 Hedge Fund Index, a global, broadly representative benchmark for hedge fund performance, has return history from January 2003. The index comprises the top 90% of eligible assets in Morningstar’s hedge fund database. For the purposes of the index, Morningstar counts funds with shared portfolios as a single hedge fund; funds of hedge funds are excluded from consideration. The index is updated daily for the previous month-end, rebalanced monthly, and reconstituted semi-annually. In addition, Morningstar has 17 category indexes and four broad category indexes based on Morningstar’s strategy-specific classification system for hedge funds. Morningstar’s hedge fund indexes are not investable.
In addition to calculating the Morningstar Hedge Fund Indexes, Morningstar also 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.
Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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