MORN Morningstar Inc

CHICAGO, April 23 /PRNewswire-FirstCall/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for the first quarter of 2010 and asset flows through February. In March, the Morningstar 1000 Hedge Fund Index enjoyed a moderate increase. The index rose 2.8% while the currency-hedged Morningstar MSCI Composite Index increased 2.3%. For the quarter, these indexes ended up 1.6% and 2.5%, respectively. Hedge fund returns were bolstered by a global equity market rally in March. The MSCI World Stock Index climbed 6.0%, as stock markets in Europe, Asia, The United States, and emerging countries all showed substantial gains.  

Hedge funds in Morningstar's database appeared to be hedged similarly in March as they were in November 2009, when hedge funds captured only a small fraction of that month's equity market profits. Contributors to gains for stocks in March included the U.S. Federal Reserve's announcement reiterating a low interest rate policy, the European Union's move toward a bailout of Greece, and positive manufacturing indicators in the United States, EU, and Japan.

"Hedge funds remain cautious, but they are peeking their heads out at the stock market rally," said John Rekenthaler, Morningstar's vice president of research. "They are assuming greater market risk while equity markets rebound."

As is typical during market recoveries, the riskiest asset classes tended to show the largest gains. The Morningstar Emerging Market Equity Hedge Fund Index and the currency-hedged Morningstar MSCI Emerging Markets Hedge Fund Index rose 4.3% and 4.8%, respectively, in March. Eastern European stocks moved the most, benefiting from the European Union's support of Greece.

Another risky asset class, distressed securities, also saw outsized returns in March—the Morningstar Distressed Securities Hedge Fund Index rose 5.8%. Global issuance of junk bonds reached a record high for the first quarter of the year, according to Thompson Reuters, and investors seeking yield soaked up the supply. As equities and risk debt surged in March, investment grade and government issues lagged. The Morningstar Global Debt Index gained a modest 1.4%.

The Morningstar Corporate Actions Hedge Fund Index rose 3.5% in March, even though overall global deal volume continues to disappoint. Deals surged in Asia in the first quarter, however, providing some investment opportunities.

Morningstar's Global Trend Hedge Fund Index, which tracks funds that profit from upward and downward price trends in global stocks, bonds, commodities, and currencies, enjoyed a 4.1% increase in March. Momentum in oil prices, which hit 17-month highs due to positive global economic data and President Obama's new offshore drilling policy, as well as a rising U.S. dollar and falling gold prices, contributed to gains in trend-following funds.

Hedge funds in the Morningstar database saw overall inflows of $2.6 billion in February, bringing net outflows down to approximately $1.0 billion for the first two months of the year.        

March returns for the Morningstar Hedge Fund Indexes and the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of April 19, 2010. February asset flows are based on funds that reported as of April 20, 2010. Hedge fund investors, managers, consultants, and advisors can access additional information through the Morningstar® Alternative Investment Center(SM), formerly Morningstar® Altvest(SM), the company's research platform designed specifically for hedge funds, or Morningstar Direct(SM), the company's global research platform for institutions.

Morningstar has approximately 8,000 hedge funds and funds of hedge funds in its database. The Morningstar 1000 Hedge Fund Index, a global, broadly representative benchmark for hedge fund performance, has return history from January 2003. The index comprises the top 90% of eligible assets in Morningstar's hedge fund database. For the purposes of the index, Morningstar counts funds with shared portfolios as a single hedge fund; funds of hedge funds are excluded from consideration. The index is updated daily for the previous month-end, rebalanced monthly, and reconstituted semi-annually. In addition, Morningstar has 17 category indexes and four broad category indexes based on Morningstar's strategy-specific classification system for hedge funds. Morningstar's hedge fund indexes are not investable.

In addition to calculating the Morningstar Hedge Fund Indexes, Morningstar also calculates hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar's hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class.

This release is not intended to be an offer or solicitation for the sale of hedge funds. The information is not warranted to be accurate, complete, or timely. When considering hedge funds, investors should consider various risks, including the fact that some products engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager. The high degree of leverage that is often obtainable in trading can lead to large losses as well as gains. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 350,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 20 countries and minority ownership positions in companies based in two other countries.

Correction to previously stated hedge fund of fund asset flow data

Morningstar recently learned we have been incorrectly reporting the hedge fund of fund asset flow data in our hedge fund press releases since April 21, 2009. The hedge fund of fund asset flow data cited in our press releases included flow data from only a subset of the funds of funds in our database, and was therefore understated. The error did not affect single-manager funds. We regret any inconvenience this may have caused. If you have any questions, please email newsroom@morningstar.com.

Separately, Morningstar will discontinue publishing hedge fund of fund asset flows in these releases, because single-manager flow data already reflects most hedge fund of fund flow data. If you would like a breakout of the hedge fund of fund flows, please email newsroom@morningstar.com.

©2010 Morningstar, Inc.  All rights reserved.

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SOURCE Morningstar, Inc.