Morningstar: Hedge Funds Gain 0.7% In September

Oct 19 2012 | 8:04am ET

Hedge fund gained 0.7% in September, ending the third quarter up 3%, according to the Morningstar MSCI Composite Hedge Fund Index.

“Global equity markets rallied on the back of monetary easing steps taken by central banks" said Terry Tian, an alternative investments analyst at Morningstar. "Equity-focused hedge funds were the biggest winners in September.”

The U.S. stock market continued to climb in September, as the Federal Reserve rolled out the third round of quantitative easing. The S&P 500 Index and the Russell 2000 Index rose 2.6% and 3.3% in September, respectively, and 6.2% and 5.2% over the quarter, respectively.

Equity-focused hedge funds lagged the broad market due to their hedging positions, but still delivered some of the strongest returns among all hedge fund strategies.

The Morningstar MSCI Equity Hedge Fund Index and the Morningstar MSCI Small Cap Hedge Fund Index rose 1.9% and 2.9% in September, respectively, ending the third quarter up 3.6% and 4.6%, respectively.

According to Morningstar analysts, the policies of the U.S. Federal Reserve and the European Central Bank helped drive emerging markets stock prices higher as well. The MSCI EM NR Index jumped 6.0% in September and 7.7% for the third quarter. The Morningstar MSCI Emerging Market Hedge Fund Index rose 1.7% in September and 3.3% for the third quarter.

Event-driven strategies delivered the third consecutive month of positive returns, as merger deal flow and risk appetite remained strong. The Morningstar MSCI Event-Driven Hedge Fund Index turned out to be one of the best performing hedge fund indexes, rising 3.0% in September and finishing the third quarter up 5.1%.

September proved to be a difficult month for managed futures strategies, however, due to reversals in commodity markets. The Morningstar MSCI Systematic Trading Hedge Fund Index declined 0.7% for the month, but remained up 2.2% for the quarter.

Inflows and Redemptions

In August, single-manager hedge funds in Morningstar’s Hedge Fund Database saw $1.8 billion in redemptions. The systematic futures category experienced the heaviest redemptions among all single-manager categories, bleeding $3.4 billion.

The debt arbitrage and global macro categories received inflows of $784 million and $438 million, respectively.

Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database.

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