Morningstar, Inc. Reports Second-Quarter 2008 Hedge Fund Performance and Asset Flows

2008-07-15 10:54:00

    CHICAGO, July 15 /EMWPresswire-FirstCall/ -- Morningstar, Inc. (Nasdaq:

MORN), a leading provider of independent investment research, today

reported a summary of hedge fund performance for the second quarter of

2008. June marked a bad end to a good quarter. The Morningstar 1000 Hedge

Fund Index fell 0.73% during the month, pushing down second-quarter returns

to 2.07%. Year to date, the index is up only 0.31%, as hedge funds

struggled through poor market conditions.



    "Equity markets suffered steep declines in June," said Morningstar

hedge fund analyst Nadia Van Dalen. "Volatility returned to levels not seen

since March, amid fears of recession and rising inflation. Most hedge funds

are not immune to these economic shocks, despite what their name might

imply."



    There were significant exceptions. Over the last 12 months, the

Morningstar Global Trend Hedge Fund Index, which tracks funds that profit

from price trends in futures, options and currencies, benefited from the

sharp rise in commodity prices, returning over 18% (3.28% in June). Funds

in the Morningstar Global Non-trend Hedge Fund Index, those that take

macro-economic bets on interest rates and currencies, benefited from the

falling dollar and the rising Euro, earning 0.33% in June and more than 12%

over the last 12 months. The last 12 months also saw high volatility. Those

equity arbitrage funds that specialize in trading volatility helped drive

the Morningstar Equity Arbitrage Hedge Fund Index to a gain of more than

8.57% in the last year and 1.12% in June.



    Not surprisingly, these top-performing categories have also experienced

the most inflows. For the period ending May 31 (asset flow reporting lags

performance reporting), hedge fund investors poured more than $6 billion

into global trend funds and $2.4 billion into global non-trend funds

tracked by Morningstar. On the opposite end of the spectrum, investors fled

the U.S. equity and Europe equity hedge funds in the Morningstar database,

taking more than $7.7 billion and $6.9 billion out of these categories,

respectively.



    Morningstar's hedge fund flow data also show that, through May, assets

moved to the Morningstar-rated 4-, and 5-star hedge funds, and redeemed the

1-, 2-, and 3-star hedge funds. Four- and 5-star hedge funds received more

than $10 billion in new assets through May, while 1- and 2-star hedge funds

bled almost $10 billion in assets over the same period.



    Overall, hedge funds, including funds of hedge funds, buffered the

traditional stock and bond markets over the second quarter. Equity and bond

markets saw losses all over the world, while the Morningstar Fund of Hedge

Funds Index gained 1.43%. Over the last year, the Morningstar 1000 Hedge

Fund Index and the Morningstar Fund of Hedge Funds Index outperformed the

major global stock indexes, which experienced double-digit declines (with

the exception of emerging markets). Both hedge funds and funds of hedge

funds underperformed bond markets, however, over this same period.



    Returns of Morningstar's Broad Category Indexes, indexes that group

funds in related categories, highlight that the event-driven funds were the

hardest hit. This index includes funds in the Morningstar Corporate Actions

and Distressed Securities Categories, which sometimes take bets on

depressed or out-of-favor companies, and look for a reversal over the

longer-term. These bets may look worse before they look better, given the

economic conditions.



    Morningstar has approximately 8,500 hedge funds and funds of hedge

funds in its database. The company recently launched the Morningstar 1000

Hedge Fund Index, a global, broadly representative benchmark for hedge fund

performance. The index is composed of the top 90% of eligible assets in

Morningstar's hedge fund database. For the purposes of the index,

Morningstar counts funds with shared portfolios as a single hedge fund;

funds of hedge funds are excluded from consideration. The index is updated

daily for the previous month-end, rebalanced monthly, and reconstituted

semi-annually. In addition, Morningstar has 17 category indexes and four

broad category indexes based on Morningstar's strategy-specific

classification system for hedge funds.



    This press 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 Internet, software, and print-based products and

services for individuals, financial advisors, and institutions. Morningstar

provides data on more than 270,000 investment offerings, including stocks,

mutual funds, and similar vehicles. The company has operations in 18

countries and minority ownership positions in companies based in three

other countries. For more information about Morningstar, visit

http://www.morningstar.com.




(C)2008 Morningstar, Inc. All rights reserved. Second-Quarter 2008 Hedge Fund Performance 12-Month Return Second YTD through Quarter Return June Return April May June 2008 2008 2008 Morningstar 1000 HF PR USD 1.09 1.71 -0.73 0.31 2.74 2.07 Morningstar HF Of Funds PR USD 0.36 1.65 -0.57 -0.26 3.13 1.43 Morningstar Hedge Fund Category Indexes Morningstar Convtbl Arbitrage HF PR USD 0.59 1.15 -0.29 -0.56 -1.38 1.45 Morningstar Corporate Actions HF PR USD 0.59 1.34 -2.03 -2.94 -2.49 -0.13 Morningstar Debt Arbitrage HF PR USD 0.26 1.15 -0.59 -2.02 -0.29 0.81 Morningstar Distressed Secs HF PR USD 0.80 1.08 -3.49 -4.44 -5.03 -1.66 Morningstar Dvlp Asia Equity HF PR USD 2.32 0.84 -7.19 -9.32 -10.37 -4.23 Morningstar EM Equity HF PR USD 2.27 1.71 -3.43 -8.65 0.87 0.45 Morningstar Equity Arbitrage HF PR USD 0.38 1.25 1.12 5.77 8.57 2.78 Morningstar Europe Equity HF PR USD 0.46 1.39 -0.29 1.87 3.85 1.56 Morningstar Global Debt HF PR USD 0.46 0.54 -0.18 0.54 1.65 0.82 Morningstar Global Equity HF PR USD 1.75 2.73 0.12 0.21 1.27 4.66 Morningstar Global Non Trend HF PR USD 0.13 1.58 0.33 4.24 12.44 2.05 Morningstar Global Trend HF PR USD -0.92 2.37 3.28 15.28 18.29 4.75 Morningstar Multistrategy HF PR USD 1.19 1.81 0.90 1.57 0.46 3.95 Morningstar Short Equity HF PR USD 1.91 0.57 -6.19 -6.48 -2.14 -3.85 Morningstar US Equity HF PR USD 3.00 2.76 -3.33 -2.32 -2.11 2.32 Morningstar US Small Cap Eqty HF PR USD 3.16 3.95 -1.14 -2.98 -1.24 6.00 Morningstar Broad Hedge Fund Category Indexes Morningstar Arbitrage HF PR USD* 0.57 0.99 0.10 1.56 3.44 1.67 Morningstar Equity HF PR USD** 2.14 2.24 -2.13 -2.16 0.80 2.21 Morningstar Event HF PR USD*** 0.99 1.17 -2.50 -3.60 -4.57 -0.38 Morningstar Global Derivatives HF PR USD**** -0.50 1.69 1.70 9.44 14.64 2.91 Market Indexes S&P 500 TR 4.87 1.30 -8.43 -11.91 -13.12 -2.73 Russell 2000 TR USD 4.19 4.59 -7.70 -9.37 -16.19 0.58 MSCI World USD 4.98 1.11 -8.10 -11.75 -12.50 -2.45 MSCI EM USD 7.87 1.55 -10.16 -12.72 2.59 -1.58 MSCI Europe USD 3.89 -0.48 -8.86 -14.42 -14.01 -5.77 MSCI AC Asia GR USD 7.67 -0.18 -9.10 -12.92 -9.59 -2.30 LB US Agg Bond TR USD -0.21 -0.73 -0.08 1.13 7.12 -1.02 LB Global Agg TR USD -1.91 -1.11 0.09 3.53 12.90 -2.91 JPM EMBI Global TR USD 1.01 0.12 -1.93 -0.18 5.09 -0.81 All returns are in U.S. dollar terms Returns are based on hedge funds in the Morningstar indexes that reported performance as of July 11, 2008. * Morningstar Arbitrage Broad Category Index is a combination of the Morningstar Convertible Arbitrage, Debt Arbitrage, and Equity Arbitrage Indexes ** Morningstar Equity Broad Category Index is a combination of the Morningstar Developed Asia, Emerging Markets, Europe, Global, Short, U.S., and U.S. Small Cap Equity Indexes *** Morningstar Event Broad Category Index is a combination of the Morningstar Corporate Actions and Distressed Securities Indexes **** Morningstar Global Derivatives Category Index is a combination of the Morningstar Global Non-Trend and Global Trend Indexes Hedge Fund Asset Flows Through May 2008 YTD Flows 12-Month Flows May Assets (millions) (millions) (millions) 5-star $4,247.00 $9,383.00 $88,000.00 4-star $6,122.00 $17,112.00 $154,000.00 3-star $96.00 $2,631.00 $204,000.00 2-star $(6,588.00)$(12,478.00) $59,000.00 1-star $(3,727.00) $(6,291.00) $20,000.00 Not Rated $(1,323.00) $10,662.00 $127,000.00 Total $(1,173.00) $21,019.00 $652,000.00 Morningstar Convtbl Arbitrage HF PR USD $(1,540.00) $(1,544.00) $10,000.00 Morningstar Corporate Actions HF PR USD $327.00 $7,411.00 $57,000.00 Morningstar Debt Arbitrage HF PR USD $(973.00) $4,356.00 $32,000.00 Morningstar Distressed Secs HF PR USD $776.00 $1,786.00 $29,000.00 Morningstar Dvlp Asia Equity HF PR USD $(306.00) $(1,972.00) $16,000.00 Morningstar EM Equity HF PR USD $1,778.00 $5,516.00 $55,000.00 Morningstar Equity Arbitrage HF PR USD $2,186.00 $3,054.00 $40,000.00 Morningstar Europe Equity HF PR USD $(6,950.00) $(5,771.00) $60,000.00 Morningstar Global Debt HF PR USD $2,564.00 $3,456.00 $50,000.00 Morningstar Global Equity HF PR USD $(1,868.00) $(1,799.00) $33,000.00 Morningstar Global Non Trend HF PR USD $2,495.00 $5,377.00 $52,000.00 Morningstar Global Trend HF PR USD $6,120.00 $5,549.00 $53,000.00 Morningstar Multistrategy HF PR USD $1,759.00 $4,343.00 $72,000.00 Morningstar Short Equity HF PR USD $313.00 $787.00 $- Morningstar US Equity HF PR USD $(7,752.00) $(9,618.00) $84,000.00 Morningstar US Small Cap Eqty HF PR USD $(103.00) $100.00 $10,000.00 Total $(1,174.00) $21,031.00 $653,000.00 * All returns are in U.S. dollar terms ** Flows are based on hedge funds in the Morningstar database that reported assets as of July 11, 2008. Media Contact: Alexa Auerbach, 312-696-6481, alexa.auerbach@morningstar.com

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