• / Free eNewsletters & Magazine
  • / My Account

Related Content

  1. Videos
  2. Articles
  1. Vanguard's Leaders and Laggards

    Morningstar's Dan Culloton sizes up the fund firm's top and bottom performers year-to-date, discusses CIO Gus Sauter's impending retirement, and more.

  2. Answering ETF Concerns

    Vanguard principal and ETF strategist Joel Dickson responds to worries that increased passive investing has led to more market volatility and that ETFs cause investors to gamble with their portfolios.

  3. Become a Better Index Investor

    Roundtable Report: Experts dig into the ETF versus index fund debate, active and passive strategies, fixed-income benchmarks, factor investing, and much more.

  4. How to Make the Most of Your 401(k)

    In this special presentation, get the answers to key questions about the quality of your plan, whether your savings are on track with your goals, how to allocate assets, and what to do with assets when you leave your job.

Hedge Fund Monthly

Growth-stock troubles trip up hedge funds in March.

Anthony D'Asaro, 05/14/2014

In a month characterized by diverging performance between growth and value stocks, hedge funds found themselves on the wrong side of the tracks. The Morningstar MSCI Composite AW Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, fell 0.4% in March, while the Russell 2000 declined 0.7% and the S&P 500 rose 0.8%. Growth-tilted portfolios based on the same indexes, such as the iShares Russell 2000 Growth IWO and the iShares S&P 500 Growth IVW, plummeted 2.5% and 0.7%, respectively. 

The Morningstar MSCI North America Hedge Fund Index, which represents primarily U.S. long-short equity strategies, declined 0.3% in March. The Morningstar MSCI Small Cap Hedge Fund Index, which represents primarily small-cap long-short equity strategies, increased a modest 0.2%.  Equity-focused hedge funds, including long-short, security selection, and some global macro strategies, make up more than 50% of the Morningstar MSCI Composite AW Index and have an outsized impact on hedge fund performance. Over the five years ended March 2014, the Morningstar MSCI Composite AW Index's correlation to the S&P 500 is a significant 0.74. 

Managed-futures hedge fund strategies were also negatively affected in March, as divergent markets disrupted directional trends. The Morningstar MSCI Directional Trading Hedge Fund Index, which includes both discretionary and systematic futures-based strategies, fell 1.4%, and the Morningstar MSCI Systematic Trading Hedge Fund Index sank 1.9%. For the 12 months ended March 2014, the Morningstar MSCI Directional Trading Hedge Fund Index decreased 0.1%, and the Morningstar MSCI Systematic Trading Hedge Fund Index declined 4.3% as hedge funds struggled with frequent reversals of investor sentiment in 2013.

Short-bias hedge funds were a bright spot, benefiting for the second-straight month from the sell-off in richly valued stocks, especially in the biotechnology and social-media sectors. The Morningstar MSCI Short Bias All Size Hedge Fund Index increased 0.8%, the second-largest increase of any Morningstar MSCI hedge fund index in March. This showing comes on the heels of a 4.4% gain in February. However, the Morningstar MSCI Short Bias All Size Hedge Fund Index has predictably struggled over the trailing 12-month period, declining 8.7% as markets rallied indiscriminately in 2013.

March returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of April 22, 2014. Hedge fund investors, managers, consultants, and advisors can gain access to additional information through Morningstar DirectSM, the company's global research platform for institutions.

 

1

Anthony D'Asaro is a fund analyst at Morningstar.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.