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April 17, 2007
Morningstar Reports First-Quarter 2007 Hedge Fund Performance
a leading provider of independent investment research, today
reported a summary of hedge fund performance for the first quarter of 2007.
Based on data from hedge funds that reported returns to Morningstar as of
April 13, 2007, hedge funds performed respectably during the first quarter,
with average total returns of 2.10%. They outperformed the major indexes,
including the S&P 500 and the MSCI World Index. Most of the quarter's gains
came in January with a return of 1.15%, but hedge funds were able to
weather the late February and early March market storm, with average
returns of 0.52% and 0.54% in those months, respectively.
Among the quarter's best performers were convertible arbitrage funds,
with 4.67% average returns. This category, with its long-option return
characteristics, benefited from increased volatility during the quarter as
well as high levels of convertible bond issuance. Funds invested in
emerging markets convertible bonds showed better results.
Emerging markets funds returned an average of 5.50%. China funds topped
the list, despite the February stock market plunge. Developed-market equity
hedge funds also fared well, with commodity (primarily energy), Europe, and
Japan funds taking the lead. The equity net long and equity variable
categories garnered 2.28% and 3.57%, respectively. Financial-sector funds,
afflicted by the subprime lending woes, did not share these results.
However, the financial turmoil proved positive for hedge funds in the
distressed companies category; these firms provide liquidity when
companies, like the subprime lenders, fall on bad times. These funds
returned 4.15% in the first three months of the year, with February being
the most lucrative month. Widening spreads and heightened volatility also
drove returns of fixed- income arbitrage funds up 2.17% for the quarter.
Event-driven and merger-arbitrage funds prospered from a flurry of
corporate activity, picking up 4.21% and 2.88%, respectively. Merger and
acquisition activity was up 27% from the first quarter of last year,
according to Thomson Financial. Allocations to these sectors allowed multi
strategy funds and hedge funds of funds to outperform as well, 2.60% and
2.86%, respectively.
Not all hedge funds thrived in early 2007. Equity net neutral funds
squeezed out only 20 basis points above the Treasury bill, at 1.51%. Global
macro funds, a category that includes currency traders, lost 47 basis
points as the business of financing higher-yielding assets with
lower-yielding currencies took a turn for the worse. The biggest loser by
far, however, was the managed futures category. Choppy markets mean bad
times for these primarily trend-following funds, which lost 2% in the first
three months of the year.
Morningstar has more than 6,000 hedge funds and hedge funds-of-funds,
grouped into 15 categories, in its database.
This press 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. Neither Morningstar nor its content providers is
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 the United States and in major international markets. The
company offers an extensive line of Internet, software, and print-based
products and services for individuals, financial advisors, and
institutional clients. Morningstar provides data on more than 190,000
investment offerings, including stocks, mutual funds, and similar vehicles.
The company has operations in 15 countries and minority ownership positions
in companies based in three other countries.
-Morningstar-
Posted by su at April 17, 2007 10:32 AM