Managed futures down, international equity strategies up in October.
The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, fell 0.8% in October but was up 4.0% for the year to date as well as during the past 12 months. This composite performance doesn't tell the full story, however; hedge funds were a mixed bag in October. Managed-futures strategies performed particularly poorly, but international equity-focused and short-biased funds posted gains on average.
The Morningstar MSCI Systematic Trading Hedge Fund Index, which includes hedge funds that profit from price trends in the futures market, plummeted almost 4.0% in October, the worst monthly performance since March 2003. Price reversals in a number of commodities, including precious metals, natural gas, and wheat, hurt many trend-following hedge fund strategies.
Domestic stock prices also seesawed throughout the month because of disappointing corporate earnings and fears of the impending fiscal cliff. The S&P 500 and Russell 2000 Indexes declined 1.9% and 2.2%, respectively. Short-biased hedged funds profited, and long-biased equity hedge funds successfully defended against market turbulence. The Morningstar MSCI North America and the Equity Hedge Fund Indexes edged up slightly at 0.01% and 0.2%, respectively, while the Morningstar MSCI Short Bias All Size Hedge Fund Index climbed 3.1%.
International equity strategies profited in October, as the central banks of Europe, England, Japan, Australia, and South Korea maintained accommodative monetary policies. The Morningstar MSCI Europe and Asia Pacific Hedge Fund Indexes rose 0.1% and 1.6%, respectively, in October. The Morningstar MSCI Emerging Markets Hedge Fund Index also rose 1.3% in October, driven primarily by the strong performance of Chinese equities.
October was a tough month for merger arbitrage strategies. BCE Inc.'s planned acquisition of Astral Media and Petronas' targeted acquisition of Progress Energy Resources were halted by Canadian regulators. The Morningstar MSCI Merger Arbitrage Hedge Fund Index declined 0.4%.
In September, single-manager hedge funds in Morningstar's Hedge Fund Database saw outflows $1.1 billion. The global macro category experienced the heaviest redemptions among all single-manager categories, bleeding $546 million. The debt arbitrage strategies and long-only debt strategies had inflows of $147 million and $194 million, respectively.