West Palm Beach (HedgeCo.net) – In a preliminary hedge fund performance report for April 2009 and asset flows through March, Morningstar reported the largest one month-return since January 2006—bringing hedge fund returns into positive territory for 2009.

"Over the last two months, the bulls have dominated the markets, and stories of green shoots in the economy colored the financial media. The rally was led by higher-risk asset classes, including small-cap, financial sector, and emerging market stocks, as well as high-yield bonds and leveraged loans. Many hedge fund managers weren’t confident in the sustainability of the rally, and invested with a more conservative market exposure," said Nadia Papagiannis, Morningstar hedge fund analyst.

U.S. convertible bonds benefited from the trend toward higher-risk, low-credit-quality investments. According to the Merrill Lynch All U.S. Convertibles Index, these securities enjoyed their best month since 1987, with speculative-grade convertibles returning more than double the gains of investment-grade securities. The Morningstar Convertible Arbitrage Hedge Fund Index, the best-performing Morningstar hedge fund index this year, rose 5.1% in April and 12.5% year to date.

Also in the lower-quality field, the Morningstar Distressed Securities Hedge Fund Index increased 2.1% in April, the largest since the beginning of the credit crunch in mid 2007.

In emerging market equities, Eastern European countries produced the best returns in April, although this region is still recovering from its early 2009 nosedive. The only losers in April were the Morningstar Global Trend and Global Non-Trend Hedge Fund Indexes, which dropped 1.7% and 0.5% respectively.

According to Morningstar’s database, hedge funds overall continued to show a decline in outflows. In January, investors withdrew more than $29 billion from hedge funds, but February outflows totaled less than $6 billion, while March’s preliminary figure showed an even lower amount, at $3.6 billion. Despite the overall March trend of outflows, developed Asia equity hedge funds actually had net inflows of $4.1 billion in March, and investors were rewarded.

Tags: convertible arbitrage, convertible-bonds, credit crunch, distressed-securities, eastern european countries, emerging market stocks, global trend, hedge fund performance, hedge-fund-index, hedge-fund-managers, hedgeco, high yield bonds, investment grade securities, leveraged-loans, market-exposure, merrill-lynch, nosedive, quality field, quality investments, west palm beach

West Palm Beach (HedgeCo.net) – Morningstar reported a sharp decline in credit and equity markets as the U.S. government announced its stimulus package and financial stability plan. February saw a huge sell-off in U.S. and European bank stocks caused by concerns of financial health and nationalization.

U.S. bank stocks hit a 17-year low and spreads on corporate bonds widened, according to the report.

"Hedge fund managers, like other investors, are nervous about the efficacy and unpredictability of government involvement in the economy. They just don’t know what the U.S. government will do next, and this uncertainty is wreaking havoc in the markets," said Nadia Papagiannis, Morningstar hedge fund analyst.

Widening spreads hurt hedge funds that invest in distressed debt, as lower-quality credits became cheaper. The Morningstar Distressed Securities Hedge Fund Index was one of the worst-performing category indexes, falling 4.1%. The Morningstar MSCI Specialist Credit and Relative Value Hedge Fund Indexes fell only 0.5% and 0.1%, respectively, as some areas of the credit market, such as leveraged loans, performed better than others.

Global non trend funds, those that make macro-economic bets, and global trend funds, those that bet on price trends in commodity and financial futures, showed mixed results in February. These funds took advantage of the rise in gold and the depreciation of the Japanese yen against the U.S. dollar, but volatility in other commodities such as oil caused declines.

Alex Akesson

Tags: accredited-investors, bank-stocks, category indexes, corporate bonds, distressed-debt, distressed-securities, financial futures, global trend, government involvement, hedge-fund-index, hedgeco, japanese yen, leveraged-loans, nationalization, price trends, relative-value, stimulus package, u s bank, wreaking havoc

West Palm Beach (HedgeCo.net) – Morningstar reported a summary of hedge fund performance for January 2009 as well as asset flows for 2008. As stocks and government bonds got clobbered in January, hedge funds held up relatively well, the report said.

The Morningstar 1000 Hedge Fund Index declined only 1.2% and the currency-hedged Morningstar with MSCI Hedge Fund Composite Asset-Weighted Index rose 1.2%, against the MSCI World Index’s 8.9% drop and the BarCap Global Aggregate Index’s 3.3% decline.

"Some liquidity returned to the credit markets in January, helping certain hedge fund strategies, but even hedge funds trading equities persevered through January’s tough markets," said Morningstar Hedge Fund Analyst Nadia Papagiannis. "Overall, hedge funds held their own in January."

The rise in the U.S. dollar created profits for some price-trend-following and global-macro non-trend funds in January, but volatility across equity, government bond, and commodity markets throughout the month led to trading losses. The Morningstar Global Non-Trend Hedge Fund Index rose 0.1% while the Morningstar Global Trend Hedge Fund Index declined 1.6%.

Investors continued to pull out of hedge funds, withdrawing $26 billion in December and $70 billion for the year. Europe- and U.S.-equity hedge funds saw the largest redemptions, losing $14.8 and $18.3 billion respectively in 2008.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

Tags: accredited-investors, commodity-markets, credit markets, equity hedge, global macro, global trend, government bond, government bonds, hedge fund performance, hedge fund strategies, hedge-fund-index, hedgeco, morningstar, msci-world-index, price trend, redemptions, trading-losses, weighted index