Morningstar Releases February Reports On Hedge Fund Performance

Morningstar, Inc., a provider of independent investment research, reported a summary of hedge fund performance for February 2009. The credit and equity markets experienced a sharp decline in February, as the U.S. government announced its stimulus package and financial stability

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Morningstar, Inc., a provider of independent investment research, reported a summary of hedge fund performance for February 2009. The credit and equity markets experienced a sharp decline in February, as the U.S. government announced its stimulus package and financial stability plan. February saw a huge sell-off in U.S. and European bank stocks caused by concerns of financial health and nationalization. U.S. bank stocks hit a 17-year low and spreads on corporate bonds widened. The unhedged Morningstar 1000 Hedge Fund Index and currency-hedged Morningstar with MSCI Composite (asset-weighted) Index dropped 1.2% and 0.6%, respectively, in February.

“Hedge fund managers, like other investors, are nervous about the efficacy and unpredictability of government involvement in the economy,” says Nadia Papagiannis, Morningstar hedge fund analyst. “They just don’t know what the U.S. government will do next, and this uncertainty is wreaking havoc in the markets.”

Widening spreads hurt hedge funds that invest in distressed debt, as lower-quality credits became cheaper. The Morningstar Distressed Securities Hedge Fund Index was one of the worst-performing category indexes, falling 4.1%. The Morningstar MSCI Specialist Credit and Relative Value Hedge Fund Indexes fell only 0.5% and 0.1%, respectively, as some areas of the credit market, such as leveraged loans, performed better than others.

Convertible bonds lost value in February overall, but certain non-financial-sector convertibles saw gains. The Morningstar Convertible Arbitrage Hedge Fund Index remained positive for the second consecutive month, rising 0.2%. Also positive for a second month, the Morningstar Corporate Actions Hedge Fund Index rose 0.5%. These funds benefited from some large mergers and acquisitions and increased government involvement-government-backed mergers and acquisitions accounted for 62% of global volume in February, a record high according to Thomson Reuters.

The S&P 500, MSCI World, MSCI AC Asia, and MSCI Europe indexes declined more than 10% in February, helping the Morningstar Short Equity Hedge Fund Index to register a 2.9% increase, beating out other categories by a wide margin. European equity hedge funds fared better than U.S. and Asian equity funds. The Morningstar Europe Equity Hedge Fund Index lost only 1.0%, while the Morningstar US and Developed Asia Equity Hedge Fund Indexes dropped 2.6% and 3.1%, respectively.

Global non trend funds, those that make macro-economic bets, and global trend funds, those that bet on price trends in commodity and financial futures, showed mixed results in February. These funds took advantage of the rise in gold and the depreciation of the Japanese yen against the U.S. dollar, but volatility in other commodities such as oil caused declines. The Morningstar Global Trend and Global Non-Trend Hedge Fund Indexes fell 0.3% and 0.5%, respectively.

D.C.

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