Index

Morningstar MSCI Composite Hedge Fund Index up 0.5 per cent in November

The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, rose 0.5 per cent in November and was up 4.8 per cent year to date and 5.0 per cent over the last 12 months.

“International equities and high-yield bonds rallied in November, boosting long-short equity and long-short credit hedge fund strategies,” says Nadia Papagiannis, director of alternative fund research at Morningstar.

The Morningstar MSCI Asia Pacific Hedge Fund Index jumped 1.2 per cent in November, more than any other Morningstar hedge fund index. Japanese and Taiwanese equities climbed, as a call for elections in Japan brought the hope of more economic stimulus, and as Taiwan’s cabinet announced they would support measures to boost the country’s stock market.

In Europe, markets rallied later in the month as European finance ministers negotiated a new debt deal to keep Greece in the Eurozone. The Morningstar MSCI Europe Hedge Fund Index rose 0.7 per cent in November.

Good news in Europe also pushed European high-yield bond prices higher. Hedge funds profited from long credit positions in countries such as Greece, Poland, and Turkey. The Morningstar MSCI Long-Short Credit Hedge Fund Index rose 0.6 per cent in November.

US equity and credit markets underperformed global markets in November. Uncertainty over the outcome of the “fiscal cliff” caused losses in domestic stocks and bonds, and pushed Treasuries higher early in the month. Positive housing and consumer spending numbers cause those trends to reverse mid-month, however. Still, US-focused long- short equity hedge funds lost money. The Morningstar MSCI North America Hedge Fund Index declined 0.3 per cent in November.

Merger arbitrage and event-driven strategies fared particularly well in November, as the impending fiscal cliff triggered a significant number of new deals since October. The Morningstar MSCI Merger Arbitrage and the Event-Driven Hedge Fund Indexes both climbed approximately 0.7 per cent in November.

Conversely, the news kept getting worse for systematic managed futures strategies, those that take long or short positions in futures contracts based on longer-term price trends in various asset classes. In November, the Morningstar MSCI Systematic Trading Hedge Fund Index fell 0.6 per cent, bringing the losses to 4.3 per cent for the year to date. Rapid swings in the price of commodities such as gold and crude oil hurt performance in November. Short-bias hedge fund strategies did even worse than managed futures strategies, as equity and credit markets performed strongly this year. The Morningstar MSCI Short Bias All Size Hedge Fund Index fell 2.7 per cent in November and 12.5 per cent for the year to date.

In October, single-manager hedge funds in Morningstar's Hedge Fund Database saw outflows of almost USD3 billion. Multi-strategy funds experienced the heaviest redemptions among all single-manager categories, bleeding USD1.4bn. Not all categories lost assets, however. Global macro funds, which saw the largest net outflows in September, saw the largest net inflows in October, of USD602m. For the year-to-date through October, investors have poured the most assets into diversified arbitrage, multi-strategy and global macro hedge fund strategies, and have pulled the most from systematic futures.

The best-performing funds (5-star funds) received strong inflows throughout the year, while all other hedge funds in the database experience outflows, on average.

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