Despite posting November losses, two Morningstar Inc. hedge fund indexes still came out ahead this year in what has shaped up to be tougher time for the asset class.

The Morningstar 1000 Hedge Fund Index dropped .8% in November, while the Morningstar MSCI Composite Index fell .1% that month. Despite those declines, both indexes have risen in the year to date through November, with the Morningstar 1000 Hedge Fund Index up 6.1% and the Morningstar MSCI Composite Index rising 7.2%, according to new data released by the firm.

Both funds beat global stock performance through November, Morningstar said. But keeping pace with hedge fund performance from last year has so far proved a more difficult challenge. As of November, performance to date represents only one-third of 2009’s achievements for the same period.

The Morningstar 1000 Hedge Fund Index includes the top 90% of eligible assets in Morningstar’s hedge fund database. That index counts funds sharing portfolios as a single hedge fund and does not include funds of hedge funds. Morningstar also creates indexes by applying the MSCI hedge fund index methodology and hedge fund classification standard to its database.

Morningstar’s database includes about 11,000 hedge funds and funds of hedge funds. Its indexes are not investable.

The top performing hedge funds for the year to date through October, according to Morningstar’s database, were corporate actions, with $1.6 billion in inflows, and global non-trend hedge funds, with $4.5 billion in inflows.

The biggest hedge fund losses for the year through October include global debt hedge funds, which lost $1.8 billion in the first 10 months of the year, and shed $413 million in assets in October.

Other notable hedge fund losses, according to Morningstar, include:


  • European equity hedge funds posted some of their largest losses in November following concerns over sovereign debt and the depreciation of the Euro against other currencies. The Morningstar Europe Equity Fund Index was down 3.5%, capping off negative year-to-date returns.
  • Trend following and momentum strategy-focused funds also faced November losses. The Morningstar Global Trend Hedge Fund Index fell 3.9% in November, following a reversal in upward price trends for bonds, commodities and stocks.

Other hedge fund winners include:


  • Japanese equity strategies, which had their best month in 2010 to date in November. The Morningstar MSCI Japan Hedge Fund Index increased 2.9% versus the 2.1% gain for the MSCI Japan Equity Index.
  • Funds aimed at taking advantage of corporate transactions including restructurings and spinoffs also profited in November. That included funds in Morningstar’s Corporate Action Hedge Fund Index, which took part in General Motors’ initial public offering and Ford’s tender offer for convertible bonds. The Morningstar Corporate Actions Hedge Fund Index was up 1.2% in November, and 14.4% for the year so far.