The Morningstar 1000 Hedge Fund Index rose 0.7 per cent in April, while the currency-hedged Morningstar MSCI Composite Index increased 1.1 per cent.
For the first four months of the year, these indexes were up 2.2 per cent and 3.6 per cent, respectively.
“April was a solid month for hedge funds,” says John Rekenthaler, Morningstar’s vice president of research. “Nearly every category of hedge fund experienced a gain in April, as most global assets rose for the month. The main exceptions were in Europe, which suffered from Greece’s economic crisis, but even European hedge funds fared well if they reduced their exposure to the euro by hedging into other currencies.”
The strongest performer among the Morningstar Hedge Fund Indexes was the US small cap equity category, with a gain of 2.6 per cent. Once again, small US stocks charged to a large gain, as the Russell 2000 Stock Index increased 5.7 per cent in April, and 15.0 per cent for the year to date. With a much more modest year-to-date rise of 5.5 per cent, funds in the Morningstar US Small Cap Equity Hedge Fund Index generally shied away from maintaining anything like full exposure to the stock market.
With the US economy strengthening, the economically sensitive categories of distressed securities, debt arbitrage, and corporate actions all performed well. At an increase of 2.3 per cent, the Morningstar Distressed Securities Hedge Fund Index was the month’s second-best performer, and remains in first place for the year to date among hedge fund categories with a rise of 9.9 per cent. Close behind is the Corporate Actions Hedge Fund Index with a 2010 gain through the end of April of 8.1 per cent.
Less happily, the Morningstar Short Equity Hedge Fund Index had a disappointing loss of 4.1 per cent for the month, as the short managers in the index were neither able to hedge their stock-market exposure, nor to target relatively weak securities. The index is now down 6.4 per cent for the year to date through April, continuing an almost unabated decline since March 2009.
The Morningstar Equity Arbitrage Hedge Fund Index shed 0.2 per cent for the month, as equity arbitrage managers struggled to find their bearings in a 2010 market that has seen them drop 1.3 per cent for the year to date.
The unhedged Morningstar Europe Equity Hedge Fund Index fell 0.5 per cent for the month, while the currency-hedged Morningstar MSCI Europe Hedge Fund Index rose 0.7 per cent.
With broadly diversified hedge funds, the Morningstar Multi-Strategy Hedge Fund Index comfortably outpaced the typical hedge fund of funds, picking up 0.7 per cent in April as opposed to the 0.2 per cent increase for the Morningstar Hedge Funds of Funds Index. For the year to date through April, the multi-strategy index has a modest but significant increase of 2.1 per cent, while the funds of funds index is barely positive at 0.1 per cent. In aggregate, funds of funds have struggled to keep pace with multi-strategy funds in recent years, and 2010 is appearing to be no exception.
Single strategy hedge funds in the Morningstar database saw overall inflows of USD2.7bn in March, bringing flows into positive territory for the year of approximately USD835m through the first quarter.
