Hedge funds post largest gains since 2010, says Morningstar

The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar database, posted the largest monthly gain since December 2010.

The index increased 1.9% in January, but fell short of the MSCI World NR Stock Index’s 5.0% rise. The Morningstar MSCI Security Selection Hedge Fund Index, which includes long/short equity funds investing across all geographic regions, rose 3.6% in January.

Better-than-expected macro-economic data from the United States and China as well as improved liquidity in the European banking system, fuelled an equity market rebound globally.

This performance follows a turbulent fourth quarter last year. Hedge funds in Morningstar’s database lost $2.7bn in December, the largest outflows seen since July 2009. Overall, investors pulled $2.3bn from funds in the database in October but then poured $1.2 billion back in during November. Overall, in 2011 investors added $17.2bn to hedge funds in Morningstar’s database. The bulk of those assets went to systematic futures funds, which netted $15.3bn throughout the year.

Mallory Horejs, alternative investments analyst at Morningstar, said: “Overall, most hedge fund strategies provided positive returns in January but trailed the large gains seen across equity markets. Long/short equity strategies were best positioned to participate in these rallies and delivered the month’s highest increases.”

Long/short equity strategies focusing on emerging markets posted the largest monthly gains. The Morningstar MSCI Emerging Markets Hedge Fund Index rose 4.4%, but still lagged the MSCI Emerging Market Stock Index’s 11.3% climb. Improving investor confidence as well as strong manufacturing and employment data from Germany helped European markets to shrug off lingering sovereign debt issues. The Morningstar MSCI Europe Hedge Fund Index and MSCI Europe Stock Index increased 3.0% and 4.7%, respectively.

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