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Fund Times

March Gains End a Flat Quarter for Hedge Funds

Investors grow hungrier for risk, but hedge funds sit tight.

Hedge funds took modest advantage of March's upswings in the global equity and credit markets. Preliminary results show the Morningstar 1000 Hedge Fund Index rose 2.1% in March, while the currency-hedged Morningstar MSCI Asset-Weighted Hedge Fund Composite Index increased 0.1%. Year to date, these indexes ended almost flat. The Morningstar 1000 Hedge Fund Index dropped 0.1% for the quarter while the Morningstar MSCI Asset-Weighted Hedge Fund Composite Index rose 0.5%.

Equity markets around the world significantly rebounded in March as appetite for risk returned, especially in emerging markets. Positive lending and manufacturing news in China coupled with higher commodity prices--which helped stocks in other emerging economies such as Russia--drove the Morningstar MSCI Emerging Markets and Morningstar Emerging Markets Hedge Fund Indexes to increase 4.2% and 6.2%, respectively.

In March, equity and some credit markets saw a recovery, which helped hedge funds post small gains. But many hedge fund managers, believing that the economy is not yet out of hot water, continued to remain cautious and were not strongly positioned to participate in the market rally. The Morningstar MSCI Developed Markets Hedge Fund Index rose only 1.1% in March compared with the MSCI World Index, which climbed 7.2%.

The Treasury EuroDollar (TED) spread--the difference between interest rates on inter-bank loans and T-bills--narrowed slightly during the month indicating an increase in market liquidity. The number of new investment-grade corporate bonds doubled in the first quarter over the first quarter of 2008, bolstered by government-guaranteed debt of financial institutions. High-yield bonds fared particularly well, although the lowest-rated debt instruments suffered some from illiquidity. The Morningstar Distressed Securities Hedge Fund Index rose 1.2% in March, but declined 1.7% over the quarter; meanwhile, the Morningstar Global Debt Hedge Fund Index rose 2.4% in March and 0.4% for the quarter.

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 Morningstar Hedge Fund Index Returns ( % )
 

 


Mar 2009 YTD 2009
Morningstar 1000 HF PR USD   2.15 -0.10
Morningstar Hedge Fund of Funds PR USD   1.41 -0.45
Morningstar Hedge Fund Category Indexes        
Morningstar Convertible Arbitrage HF PR USD     3.85 7.00
Morningstar Corporate Actions HF PR USD     2.19 3.35
Morningstar Debt Arbitrage HF PR USD     0.29 0.47
Morningstar Distressed Securities HF PR USD     1.16 -1.71
Morningstar Dvlp Asia Equity HF PR USD     2.36 -2.40
Morningstar Emerging Markets Equity HF PR USD     6.24 0.63
Morningstar Equity Arbitrage HF PR USD     1.31 -0.48
Morningstar Europe Equity HF PR USD     3.95 -0.60
Morningstar Global Debt HF PR USD     2.35 0.44
Morningstar Global Equity HF PR USD     3.86 -0.47
Morningstar Global Non Trend HF PR USD     0.49 -0.12
Morningstar Global Trend HF PR USD     -2.05 -4.08
Morningstar Multistrategy HF PR USD     1.46 1.38
Morningstar Short Equity HF PR USD     2.42 3.64
Morningstar US Equity HF PR USD     3.78 1.79
Morningstar US Small Cap Eqty HF PR USD     4.23 -2.26
Select Morningstar MSCI Hedge Fund Indexes        
Morningstar MSCI Composite Asset Wtd    0.14 0.47
Morningstar MSCI Composite Equal Wtd    1.35 0.52
Morningstar MSCI Developed Markets   1.12 0.71
Morningstar MSCI Emerging Markets      4.17 1.73
Market Indexes        
MSCI World USD     7.24 -12.50
S&P 500 TR     8.76 -11.01
MSCI Europe USD     6.65 -15.17
MSCI AC Asia USD     6.25 -10.63
MSCI EM USD     14.15 0.52
BarCap Global Aggregate Bond TR USD     2.30 -3.25

All returns are in U.S. dollar terms. For the Morningstar Hedge Fund Indexes, returns are based on hedge funds that reported performance as of April 14, 2009. For the Morningstar Hedge Fund Indexes with MSCI, returns are based on hedge funds that reported performance as of April. 15, 2009.

 

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