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Morningstar Reports Hedge Fund Performance for January, Asset Flows Through December


CHICAGO — Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for January 2013 as well as estimated asset flows through December. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, rose 1.9% in January and advanced 6.3% for the trailing 12 months. Almost all Morningstar MSCI hedge fund indexes rose in January, and the trailing 12 months showed declines in only the Short Bias and Systematic Trading categories.

“Reduced global economic and political uncertainty during January fueled a broad increase in appetite for risky assets,” Philip Guziec, alternative investing strategist at Morningstar, said. “Excluding the Short Biased category, all hedge fund strategies were up for the month, and the most risk-sensitive strategies posted the strongest performance.”

January started with a two-day rally in equity markets that accounted for most of the 5.2% rise in the SandP 500 Index for the month. The Morningstar MSCI North America Hedge Fund Index, which primarily includes long-short equity hedge funds, ended the month up 2.3%. Small-cap strategies faired even better. The Russell 2000 Index jumped 6.3%, while the Morningstar MSCI Small Cap Hedge Fund Index rose 3.9%.

The Morningstar MSCI Emerging Markets Hedge Fund Index also rose substantially, up 3.0% in January, driven by positive economic news from China about GDP and exports. These positive signals also supported the performance of the Morningstar MSCI Asia Pacific Hedge Fund Index and MSCI AC Asia Index, which climbed 4.9% and 2.5%, respectively. Short sellers were caught short by the broad-based rally, however, pushing the Morningstar MSCI Short Bias Hedge Fund Index down 5.2%.

Widespread investor optimism also sent less risky fixed-income strategies, such as those involving Treasuries and investment-grade corporate bonds, down during January, but high-yield and relative-value hedge fund strategies posted gains. The Morningstar MSCI Long-Short Credit and Fixed Income Arbitrage Hedge Fund Indexes increased 0.7 and 0.9%, respectively, in January. The month-long equity rally as well as rising prices across the energy, agricultural, and metal commodity futures markets also supported price-trend following managed futures strategies in January, leading to a 2.8% rise in the Morningstar MSCI Systematic Trading Hedge Fund Index. January’s uptick was not enough to offset previous losses, however, and the Systematic Trading Hedge Fund Index was down 1.2% over the past 12 months.

In December 2012, single-manager funds in Morningstar’s Hedge Fund Database saw outflows of $4.7 billion, marking the fourth consecutive month of outflows, and representing more than half of the $7.0 billion that investors pulled from hedge funds in the database during 2012. This was a sharp reversal from investor behavior seen during 2011 and 2010, when funds in the Morningstar Hedge Fund Database received inflows of $17.9 and $10.1 billion, respectively.

The largest redemptions came from multistrategy hedge funds, which gave up $1.7 billion, or 35% of the redemptions in the Morningstar database for the month. Over the calendar year 2012, however, multistrategy funds in the database gathered more assets than any other category of $4.2 billion. Hedge funds in the Systematic Futures category, which trade futures contracts according to trend-following and momentum-based strategies, also suffered in December, losing $826 million, followed by U.S. long/short equity hedge funds, which lost $500 million. Only the Distressed Securities, Emerging Market Long-Only Equity, and Debt Arbitrage hedge fund categories posted inflows of $46 million, $25 million, and $2 million, respectively, in December.

January returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of February 25, 2013 and December asset flows are based on funds that reported as of February 15, 2013. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar Direct SM, 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 approximately 416,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 9 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 approximately $149 billion in assets under advisement and management as of Dec. 31, 2012. The company has operations in 27 countries.


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