Hedge Fund Managers "Caught Off Guard"

Hedge fund performance ranges from bad to worse in June.
By MainStreet Team ,

By Hal M. Bundrick

NEW YORK (

MainStreet

)--Hedge funds got clipped in June, falling 2% for the month, according to the Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds. Year to date performance through June was pegged at 7.2%, while the S&P 500 nearly doubled that: up nearly 14.0% (13.82%) for the period.

"The spike in volatility that hit global markets in June caught most hedge funds off guard," says AJ D'Asaro, fund analyst at Morningstar. "Nearly all hedge fund strategies declined for the month, but funds invested in emerging-markets and trend-following strategies fared the worst."

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The Morningstar MSCI Emerging Markets Hedge Fund Index lost 4.0% in June, reducing its year-to-date profit to a meager 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 focused on developed equity markets saw a bit of recovery before the end of June as the Morningstar MSCI North America Hedge Fund Index dropped just 0.5%, compared to the S&P 500 Index which fell 1.3% for the month.

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Long-short debt hedge funds saw inflows of $1.7 billion through May; the most assets gained of all single-manager hedge fund strategies. The new money was not pampered though, falling 1.8% in June -- reducing its gain 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.

Systematic trading or momentum-based hedge fund strategies sank 2.4%, for the month, extending its two-year decline. Embattled investors finally decided to check-out of the category with outflows of $1 billion in May, contributing to the $5.7 billion exit for the trailing 12 months.

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Funds in the Morningstar MSCI Merger Arbitrage Hedge Fund sagged only a fraction (0.4%). A host of merger and acquisition deals in the telecom sector has helped the category, which is up a modest 1.9% for the year through June.

Of all the Morningstar MSCI Hedge Fund Indexes, only the Morningstar MSCI Small Cap Hedge Fund Index rose in June, ahead by 0.56% for the month and 8.7% for the year-to-date period.

--Written by Hal M. Bundrick

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