Hedge edge over large-caps getting wider

Date: Friday, September 24, 2010
Author: Jeff Benjamin, InvestmentNews

Morningstar index shows hedge funds still outperforming S&P 500 for the year

Hedge funds outperformed the broad equity markets in August, continuing their edge over stocks for the first eight months of the year, according to the latest report from Morningstar Inc.

The Morningstar 1000 Hedge Fund Index gained 0.1% in August, while the S&P 500 Index fell by 4.5%.

This year through August, the hedge fund index fell by 0.1%, which the S&P fell by 4.6%.

According to the report released today, August was characterized by a general selloff of risky assets, not just equities, after the Federal Reserve confirmed weakness in the U.S. economy.

“Riskier assets such as equities have moved in concert, either up or down, over the last several months — a trying environment for many hedge fund strategies — but hedge funds effectively preserved capital in August,” said Nadia Papagiannis, an alternative investment strategist at Morningstar.

As investors poured money into the safety of U.S. Treasuries, interest rates fell to historic lows and bond prices moved higher. This turned out to be good news for trend-following managed futures funds, which were able to capitalize on the upward trend in Treasury futures.

The Morningstar Global Trend Hedge Fund Index gained 3.5% in August, reversing an otherwise difficult year for the strategy, which is up just 0.5% over the first eight months of 2010.