• / Free eNewsletters & Magazine
  • / My Account

Related Content

  1. Videos
  2. Articles
  1. Bank Loans Possible High -Yield Substitutes, but Watch Risks

    Although defaults are decreasing and fund inflows are increasing, bank loans carry significant credit risk and illiquidity compared with other fixed-income vehicles.

  2. Where to Find the Best High -Yield Value

    PIMCO's Andrew Jessop sees opportunities with European and health-care high - yield bonds but also warns of likely lower returns beginning in 2013 given the recent runup.

  3. First Eagle's Slein: High -Yield Fundamentals Solid

    The current credit environment is benign and stable, and investors should expect a coupon-type return over the coming years, says First Eagle's Sean Slein.

  4. A Two-Pronged Approach to Investing in European Stocks

    FPA's Eric Bokota discusses his recipe for finding value in Europe for his new fund as well as why he's cautious of putting money into Asian names.

August Hedge Fund Review

Hedge funds post gains in August.

Mallory Horejs, 09/27/2012

The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, inched up 0.3% in August, falling short of the MSCI World Stock Index's 2.5% climb. Speculation of further central bank easing in the United States and Europe drove most global equity markets higher in August. Managers across most hedge fund strategies found opportunities to profit. 

Despite light trading volume throughout August, developed-markets equities notably benefited from improving U.S. economic data and the European Central Bank's bond-buying proposal. Hedge funds investing in North America and Europe rose but failed to keep pace with the unhedged stock markets. The Morningstar MSCI North America Hedge Fund Index climbed 1.4% but fell short of the S&P 500 Index's 2.3% increase. The Morningstar MSCI Europe Hedge Fund Index trailed the MSCI Europe stock market index by a wider margin, as the indexes rose 0.4% and 4.4%, respectively. Overall investor sentiment continued to improve throughout the month, and the Chicago Board of Options Exchange Volatility Index fell to levels not seen since 2007. 

In August, event-driven hedge fund strategies posted their highest monthly increases in nearly one year because of increasing investor risk tolerance and lower equity volatility levels. The Morningstar MSCI Event-Driven and Morningstar MSCI Merger Arbitrage Hedge Fund indexes jumped 2.0% and 0.4%, respectively. High-yield securities also rallied sharply in August, and investor demand boosted new high-yield bond issuance to unseasonably high levels. The Morningstar MSCI Distressed Securities Hedge Fund Index rose 0.8% against the Barclays Global High Yield Index's 2.1% jump. The Morningstar MSCI Specialist Credit Hedge Fund Index climbed 0.5%. 

Asia Pacific and emerging-markets equities did not fare as well in August, as Japan's second-quarter gross domestic product was revised downward and growth prospects in China continued to decline. The MSCI Asia Pacific and MSCI Emerging Market stock market indexes dipped 0.6% and 0.3%, respectively. Hedge funds investing in these regions managed to provide investors some downside protection, though. The Morningstar MSCI Asia Pacific and Morningstar MSCI Emerging Markets Hedge Fund indexes posted modest increases of 0.4% and 0.7%, respectively.

Price trend-following strategies were one of the few groups to post losses in August. Currency trading proved especially challenging as several currency pairs’ price trends reversed during the month. The Japanese yen, for example, first depreciated against the U.S. dollar because of lower export numbers in Japan, but then appreciated on news of Federal Reserve easing. The Morningstar MSCI Systematic Trading Hedge Fund Index, which includes funds that trade price momentum across equity, interest-rate, currency, or commodity futures contracts, declined 0.9%. 

After leaking more than $2.5 billion in June, hedge funds in Morningstar's database experienced yet another month of sizable outflows, bleeding $4.2 billion in July. For the year to date through July, single-manager hedge funds in Morningstar’s database lost more than $5.1 billion. Systematic futures funds experienced the greatest outflows by far, losing $3.8 billion in July alone. Investors timed these withdrawals well, though, given the category's overall poor performance in August. Funds in the event-driven and distressed-securities categories also suffered, leaking $415 million and $346 million, respectively.

1
Mallory Horejs is an alternative investments analyst with Morningstar.
blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.