Investment research provider Morningstar Inc. said hedge fund returns gained in the second quarter, but a difficult June weighed on results.
The Morningstar 1000 Hedge Fund Index fell 0.73 percent during June, pushing down second-quarter returns to 2.07 percent. Year to date, the index is up only 0.31 percent, as hedge funds have struggled through poor market conditions, Morningstar said.
"Equity markets suffered steep declines in June," said Morningstar hedge fund analyst Nadia Van Dalen. "Volatility returned to levels not seen since March, amid fears of recession and rising inflation. Most hedge funds are not immune to these economic shocks, despite what their name might imply."
Among the exceptions to the trend were funds that benefited from the rise in commodity and currency prices. In the last 12 months, the Morningstar Global Trend Hedge Fund Index, which tracks funds that invest in futures, options and currencies, returned more than 18 percent, including 3.28 percent in June. And funds in the Morningstar Global Non-trend Hedge Fund Index, which take macroeconomic bets on interest rates and currencies, benefited from the falling dollar and the rising euro. They earned 0.33 percent in June and more than 12 percent in the last year.
High volatility in the last year helped equity arbitrage funds that specialize in trading volatility. The Morningstar Equity Arbitrage Hedge Fund Index gained more than 8.57 percent in the last year and 1.12 percent in June.
The top-performing categories also had the most inflows. For the period ending May 31, hedge fund investors put more than $6 billion into global trend funds and $2.4 billion into global non-trend funds tracked by Morningstar.
Meanwhile, investors pulled more than $7.7 billion out of U.S. equity hedge funds and more than $6.9 billion from Europe equity hedge funds in the Morningstar database, which includes about 8,500 hedge funds and funds of hedge funds.
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