FEBRUARY 21, 2012, 12:43 P.M. ET
Article from The Wall Street Journal
DOW JONES NEWSWIRES
Hedge fund performance in January notched its largest monthly gain in more than a year, but funds fell short of the equity market's stronger rebound, according to the investment-research company Morningstar Inc. (MORN).
The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds, rose 1.9% in January, its largest monthly gain since December 2010, while the MSCI World NR Stock Index saw a 5% increase.
"Overall most hedge fund strategies provided positive returns in January but trailed the large gains seen across equity markets," said alternative investments analyst Mallory Horejs.
Long/short equity strategies that focused on emerging markets delivered the month's highest increases. The Morningstar MSCI Emerging Markets Hedge Fund Index rose 4.4%, but fell short of the MSCI Emerging Market Stock Index's 11.3% increase.
The Morningstar MSCI Europe Hedge Fund Index and MSCI Europe Stock Index jumped 3% and 4.7%, respectively, as investor confidence improved and strong manufacturing and employment data from Germany helped offset lingering sovereign debt concerns.
The Morningstar MSCI Small Cap and North America Hedge Fund Indexes jumped 4.4% and 2.7%, respectively, while the Russell 2000 TR stock index was up 7.1% and the S&P 500 stock index rose 4.5%. Morningstar noted that in the U.S., strategies that were focused on smaller-capitalization stocks outperformed as risky assets benefited the most from improving market sentiment.
Only two hedge fund indexes tracked by Morningstar fell last month. The Morningstar MSCI Currencies Hedge Fund Index slipped 0.1%, as some trading strategies struggled with the intra-month reversal of the euro, and the Morningstar MSCI Short Bias Hedge Fund Index slipped 6.2%.
Investors pulled $2.7 billion in hedge funds tracked by Morningstar in December, marking the steepest outflows since July 2009. Event-driven hedge funds saw the largest outflows for the month, losing $1.1 billion in December. Funds in the U.S. long/short equity and convertible arbitrage categories also saw sizeable outflows of $668 million and $240 million, respectively, in December. Only five of the 21 hedge fund categories reported inflows in December, with the long/short debt category netting the largest inflow of $364 million.
For 2011, investors added $17.2 billion to hedge funds in Morningstar's data base, the bulk of which went to systematic futures funds.
Funds of funds tracked by Morningstar saw $3.1 billion in outflows for December, the largest monthly outflow seen in nearly three years. Investors withdrew $8.1 billion overall from funds of funds during 2011.
-By Nathalie Tadena, Dow Jones Newswires; 212-416-3287; nathalie.tadena@dowjones.com
