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Tuesday, July 23, 2019

Morningstar Reports Hedge Fund Performance for Third Quarter 2009, Asset Flows Through August


Date: Wednesday, October 21, 2009
Author: PR Newswire

Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for the third quarter of 2009 and asset flows through August 2009. Hedge funds are recovering rapidly in 2009. The Morningstar 1000 Hedge Fund Index climbed 7.4% during the third quarter and 17.2% through the first nine months of the year, while the currency-hedged Morningstar MSCI Hedge Fund Composite rose 6.1% for the quarter and 12.1% for the year through September.

"Paced by an exceptionally strong September, hedge funds began to regain their swagger in the third quarter," said Nadia Papagiannis, Morningstar alternative investments strategist. "The road to recovery for hedge funds was paved by strong performance in riskier asset classes such as emerging markets, distressed, and small-cap securities."

But hedge funds overall haven't yet returned to their October 2007 peaks--the Morningstar 1000 Hedge Fund Index declined 25.2% through February 2009, and has only recovered 20% in the last seven months, with 11.4% to go. Certain hedge fund strategies have set new highs, however. In September, the Morningstar Global Non-Trend Hedge Fund Index, which includes hedge funds following global macro-economic strategies, fully recovered from 2008 losses, despite lagging the performance of other category indexes this year. Appreciation of the Australian dollar and the Euro versus the U.S. Dollar as well as spikes in silver and gold prices helped this index rise 1.9% in September.

Convertible arbitrage and emerging markets hedge funds have outperformed all other Morningstar categories thus far in 2009. The Morningstar Convertible Arbitrage Hedge Fund Index rose 3.0% in September and 32.1% for the year through September, while the currency-hedged Morningstar MSCI Emerging Markets Hedge Fund Index increased 4.6% in September and 31.0% for the year through September. Convertible bonds, which crashed in 2008 due to forced selling by leveraged hedge funds, are enjoying a tremendous 2009. Low prices and higher yields attracted traditional, non-hedge-fund investors, while more companies issued convertible bonds during tight bank lending conditions and rapidly rising equity prices. Emerging markets hedge funds benefited from outsized rallies in Indian, Russian, and Latin American stocks in 2009.

Strong equity markets in developed countries buoyed funds in the Morningstar Global Equity Hedge Fund Index, which increased 3.7% in September--slightly less than the MSCI World Equity Index, which rose 4.0%. The Morningstar MSCI Developed Markets Hedge Fund Index rose only 2.5%, however, as allocations to Japanese stocks dragged down performance. The Morningstar MSCI Japan Hedge Fund Index and the Morningstar Short Equity Hedge Fund Index were the worst-performing Morningstar hedge fund indexes in September dropping 1.2% and 1.6%, respectively.

September saw a continuation of the rally in small-capitalization stocks, as investors snapped up riskier assets. The Morningstar U.S. Small Cap Equity Hedge Fund Index rose 5.0% and the Morningstar Distressed Hedge Fund Index, which also reflects risk appetite, jumped 6.7%.

As risk-aversion declined, hedge funds once again experienced inflows. Funds in Morningstar's database saw $5.9 billion of new flows in August, with the bulk of those assets going to global trend hedge funds. With the exceptions of August and June, investors have withdrawn assets from hedge funds every other month this year. Outflows totaled $59.7 billion for the year through August.

September returns and August asset flows for the Morningstar Hedge Fund Indexes are based on funds that reported as of Oct. 16, 2009. Returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported August performance as of Oct. 12, 2009. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar® Altvest(SM), the company's the research platform designed specifically for hedge funds. Visit www.altvest.com for more information.

Morningstar has more than 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 more than 325,000 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.

©2009 Morningstar Inc. All rights reserved.

                                                  Sept.   Q3 2009  YTD Through
Morningstar Hedge Fund Index Performance 2009 Sept. 2009
---------------------------------------- ---- ------- ----------
Morningstar 1000 HF USD 3.10 7.43 17.22
Morningstar Hedge Fund of Funds 2.10 5.67 11.56

Morningstar Hedge Fund Category Indexes
---------------------------------------
Morningstar Convtbl Arbitrage HF USD 3.02 12.10 32.07
Morningstar Corporate Actions HF USD 3.67 8.70 26.68
Morningstar Debt Arbitrage HF USD 3.32 10.14 20.01
Morningstar Distressed Sec HF USD 6.65 12.30 17.28
Morningstar Dvlp Asia Equity HF USD 1.90 7.11 18.01
Morningstar EM Equity HF USD 6.48 13.18 41.79
Morningstar Equity Arbitrage HF USD 1.88 3.69 7.21
Morningstar Europe Equity HF USD 3.63 9.88 16.85
Morningstar Global Debt HF USD 2.52 6.80 18.59
Morningstar Global Equity HF USD 3.71 9.23 20.19
Morningstar Global Non Trend HF PUSD 1.94 3.42 6.48
Morningstar Global Trend HF USD 1.71 3.65 -0.60
Morningstar Multi-Strategy HF USD 3.09 7.42 19.61
Morningstar Short Equity HF PUSD -1.55 -4.04 2.18
Morningstar US Equity HF USD 3.12 8.40 23.89
Morningstar US Small Cap Eqty HF USD 4.97 12.44 30.68

Morningstar Hedge Fund Indexes with MSCI
----------------------------------------
Morningstar MSCI Composite AW 2.40 6.09 12.12
Morningstar MSCI Composite EW 2.68 6.92 16.59

Morningstar MSCI Composite Core Funds 2.56 6.33 13.85
Morningstar MSCI Composite Small Fund 2.74 7.25 18.21
Morningstar MSCI Developed Markets 2.52 6.78 15.83
Morningstar MSCI Directional Trading 1.99 4.20 6.72
Morningstar MSCI Emerging Markets 4.62 10.07 30.96
Morningstar MSCI Europe 2.37 7.37 12.74
Morningstar MSCI Global Markets 2.48 5.84 12.07
Morningstar MSCI Japan -1.15 0.71 9.75
Morningstar MSCI Multi-Process Group 2.92 7.49 22.63
Morningstar MSCI North America 3.12 8.16 21.24
Morningstar MSCI Relative Value 1.91 5.32 15.24
Morningstar MSCI Security Selection 3.21 8.94 22.46

Market Indexes
--------------
S&P 500 TR 3.73 15.61 19.26
Russell 2000 TR USD 5.77 19.28 22.43
MSCI Europe NR USD 4.64 22.92 31.56
MSCI AC Asia NR USD 3.16 12.26 29.40
MSCI World NR USD 3.99 17.45 24.90
MSCI Emerging Markets NR USD 9.08 20.91 64.45
BarCap US Agg Bond TR USD 1.05 3.74 5.72



Est. Hedge Fund Flows By
Morningstar Category August 2009 Flows YTD Thru August
------------------------ ----------------- ---------------
Convertible Arbitrage $184,116,808 $(451,005,530)
Corporate Actions $74,369,995 $(4,916,220,493)
Debt Arbitrage $346,040,561 $(2,957,288,980)
Developed Asia Equity $4,367,148 $(1,118,051,294)
Distressed Securities $382,964,845 $(4,034,529,030)
Equity Arbitrage $480,208,359 $(1,916,141,327)
Global Debt $(253,090,862) $(3,370,629,414)
Global Non-Trend $222,761,334 $(4,247,330,865)
Global Trend $2,416,656,106 $(3,230,416,298)
Multi-strategy $353,691,749 $(14,505,464,687)
Short Equity $(23,201,094) $2,039,086
U.S. Small Cap Equity $(36,231,185) $(567,479,276)
US Emerging Market Equity $237,550,794 $(3,192,541,274)
US Europe Equity $630,771,859 $79,591,106
US Global Equity $325,101,469 $(8,196,678,695)
US U.S. Equity $553,296,388 $(7,120,294,310)
-------------- ------------ ---------------
Total $5,899,374,274 $(59,742,441,281)

Hedge Fund of Fund Flows
------------------------
Fund of Funds - Debt $(299,183,938) $(453,983,423)
Fund of Funds - Derivatives $8,704,080 $(50,822,498)
Fund of Funds - Equity $(99,268,698) $(2,214,011,506)
Fund of Funds - Event $211,020 $(50,089,509)
Fund of Funds - Multistrategy $28,670,341 $(3,709,798,812)
Fund of Funds - Nondirectional $(282,112) $3,670,684
------------------------------ --------- ----------
Total $(361,149,307) $(6,475,035,064)

Hedge Fund Flows By Morningstar
Rating August 2009 Flows YTD Thru August
------------------------------- ----------------- ---------------
5-star $3,156,926,992 $(4,932,386,358)
4-star $1,764,077,465 $(15,465,173,249)
3-star $716,402,411 $(15,847,371,089)
2-star $(219,373,199) $(12,994,730,823)
1-star $(400,525,049) $(3,953,774,333)
Not-Rated $520,716,347 $(13,024,040,493)
--------- ------------ -----------------



Media Contact:
Alexa Auerbach, 312-696-6481 or alexa.auerbach@morningstar.com