New York (HedgeCo.Net) – Global stock and bond indexes declined in June, according to a new report by hedge fund research firm Morningstar; the MSCI World NR global stock market and Barclays Global Aggregate TR bond indexes dropped 1.2% and 2.5%, respectively.
“The spike in volatility that hit global markets in June caught most hedge funds off guard,” AJ D’Asaro, fund analyst at Morningstar,said. “Nearly all hedge fund strategies declined for the month, but funds invested in emerging-markets and trend-following strategies fared the worst.”
Reports of economic weakness, slowing growth, and high inflation in developing countries triggered massive sell-offs. Hedge funds invested in commodity-driven economies, such as Brazil and Russia, fell even further amid continuing declines in commodity prices. The Morningstar MSCI Emerging Markets Hedge Fund Index shed 4.0% in June, reducing the year-to-date increase to a scant 1.9%. The Morningstar MSCI Emerging Markets Hedge Fund Index, however, declined much less than the unhedged MSCI Emerging Markets Stock Index, which dropped 6.4% in June and 9.6% for the first six months of the year. Hedge funds concentrated in developed equity markets, including the U.S., Europe, and Japan, fared better.
These markets partially recovered toward month end as the U.S.Federal Reserve implied that any slow down in asset purchases would be contingent upon a more robust U.S. economic recovery and the European Central Bank also reaffirmed its loose monetary policy. The Morningstar MSCI North America Hedge Fund Index dropped just 0.5%, besting the S&P 500 Index, which fell 1.3%in June. Systematic trading or momentum-based hedge fund strategies continued to struggle in June due to sharp reversals in the price trends of most major futures contract markets.
The Morningstar MSCI Systematic Trading Hedge Fund Index sank 2.4%, extending its two-year decline. There was, however, a considerable divergence of returns among trend followers in June, as strategies tracking shorter-term price trends were able to adjust to the rapid price reversals and report modest gains for the month. Systematic trading was the only Morningstar hedge fund category to experience major net outflows of more than $1 billion in May and $5.7 billion over the trailing 12 months. In May 2013, single manager hedge funds in Morningstar’s database saw net outflows of $360 million, but collected $2 billion in net inflows for the year through May.
Long-short debt hedge funds received $1.7 billion through May, the most net inflows of all single-manager hedge fund strategies. Unfortunately, debt-oriented hedge fund strategies posted moderate losses in June as interest rates spiked. The 10-year U.S. Treasury note yield reached 2.6%, up nearly 100 basis points from the month before. The Morningstar MSCI Long Short Credit Hedge Fund Index fell by 1.8% in June, reducing its growth for the first six months of the year to 1.2%. In contrast, the Barclays US Aggregate Bond Index sank only 1.6% in June and remained up 2.4% for the year to date.
Editing by Alex Akesson
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