Morningstar, Inc., a provider of independent investment research, reported preliminary hedge fund performance for October 2010 and asset flows through September. October was another good month for hedge funds. The Morningstar 1000 Hedge Fund Index rose 2.7%, and the currency-hedged Morningstar MSCI Hedge Fund Index rose 2.1%, amid a continued rally in global stocks and bonds. These hedge fund indexes have increased 7.1% and 7.4%, respectively, through October 31, relative to the 6.4% year-to-date rise in the MSCI World Stock Index and the 8.3% climb in the BarCap Global Aggregate Bond Index.
“Hedge funds have generated stock-like returns with less volatility through October,” said Nadia Papagiannis, alternative investment strategist for Morningstar. “Precisely what many hedge funds advertise.”
Trend-following, or momentum-based, strategies led the way in October. The Morningstar Global Trend Hedge Fund Index rose 4.8% in October, the third straight month of significant positive results. Strong moves in silver and agriculture futures fueled profits for funds in this category. The index is close to surpassing its 2008 year-end results, its best year since 2003. October also marked a full recovery from the index’s 11% drop between July and September 2008.
The Morningstar Corporate Actions Hedge Fund Index returned to its late 2007 peak levels with a 3.1% rise in October. Corporate actions hedge funds aim to profit from events such as acquisitions, spinoffs, and restructuring. Easier credit conditions and European corporate activity helped to spur gains for these funds.
Emerging markets hedge funds fared well in October, as the MSCI Emerging Markets Hedge Fund Index rose 3.7% against the MSCI Emerging Markets Stock Index’s 2.9% increase. Large gains in Chinese and Russian stocks boosted returns for some hedge funds. For the year to date, however, the Morningstar Emerging Markets Hedge Fund Index lagged its stock-index benchmark.
Similarly, funds in the Morningstar MSCI Japan Hedge Fund Index collectively underperformed the Japanese stock market. The hedge fund index declined 0.3% in October despite positive stock market results. Hedge funds of funds, although positive through October, significantly lagged other hedge fund categories this year. The Morningstar Global Debt Hedge Fund Index also rose in October, but lagged long-dated U.S. Treasuries by several percentage points for the year ended October 31.
Hedge funds in Morningstar’s database saw slightly positive net asset inflows in September, the second consecutive month of inflows, but leaked $2.7 billion through the first nine months of the year. Outflows, however, were not seen across the board. Hedge funds in Morningstar’s Corporate Actions, Global Non-Trend, and U.S. Equity hedge fund categories saw inflows of $1.5 billion, $3.6 billion, and $1.5 billion, respectively, for the year through September.
D.C.