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Morningstar Reports Hedge Fund Performance for September, Asset Flows Through August


CHICAGO — Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for September 2012 as well as estimated asset flows through August. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, rose 0.7% in September, ending the third quarter up 3.0%.

“Global equity markets rallied on the back of monetary easing steps taken by central banks,“ said Terry Tian, alternative investments analyst with Morningstar. ”Equity-focused hedge funds were the biggest winners in September.”

The U.S. stock market continued to climb in September, as the Federal Reserve rolled out the third round of quantitative easing. The SandP 500 Index and the Russell 2000 Index rose 2.6% and 3.3% in September, respectively, and 6.2% and 5.2% over the quarter, respectively. Equity-focused hedge funds lagged the broad market due to their hedging positions, but still delivered some of the strongest returns among all hedge fund strategies. The Morningstar MSCI Equity Hedge Fund Index and the Morningstar MSCI Small Cap Hedge Fund Index rose 1.9% and 2.9% in September, respectively, ending the third quarter up 3.6% and 4.6%, respectively.

The supportive policies of the U.S. Federal Reserve and the European Central Bank helped drive emerging markets stock prices higher as well. The MSCI EM NR Index jumped 6.0% in September and 7.7% for the third quarter. The Morningstar MSCI Emerging Market Hedge Fund Index rose 1.7% in September and 3.3% for the third quarter.

Event-driven strategies delivered the third consecutive month of positive returns, as merger deal flow and risk appetite remained strong. The Morningstar MSCI Event-Driven Hedge Fund Index turned out to be one of the best performing hedge fund indexes, rising 3.0% in September and finishing the third quarter up 5.1%.

September proved to be a difficult month for managed futures strategies, however, due to reversals in commodity markets. Crude oil prices, for example, rose in early September, but reversed later in the month as Saudi Arabia increased production and investors feared a slowdown in China. Major agricultural commodities, such as corn and soybeans, fell in September after an extended summer rally. The Morningstar MSCI Systematic Trading Hedge Fund Index declined 0.7% for the month, but remained up 2.2% for the quarter.

In August, single-manager hedge funds in Morningstar’s Hedge Fund Database leaked $1.8 billion. The systematic futures category experienced the heaviest redemptions among all single-manager categories, bleeding $3.4 billion. The debt arbitrage and global macro categories received inflows of $784 million and $438 million, respectively.

September returns for the Morningstar MSCI Hedge Fund Indexes and August asset flows are based on funds that reported as of October 12, 2012. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar DirectSM, the company’s global research platform for institutions.

Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. Morningstar 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. These indexes are not investible.

This release is not intended to be an offer or solicitation for the sale of hedge funds. The information is not warranted to be accurate, complete, or timely. When considering hedge funds, investors should consider various risks, including the fact that some products engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager. The high degree of leverage that is often obtainable in trading can lead to large losses as well as gains. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $186 billion in assets under advisement and management as of June 30, 2012. The company has operations in 27 countries.


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