Preliminary hedge fund performance for July 2013 has turned
out better than expected, as asset flows for June were increasingly negative,
according to new data from the investment research firm Morningstar.

The Morningstar MSCI Composite Hedge Fund Index, an
asset-weighted composite of nearly 1,000 hedge funds, rose 1.1 per cent in
July, improving on some of last month’s decline and pushing its year-to-date
increase to 4 per cent. Similarly, global stock and bond indexes also increased
by 5.3 per cent and 1.3 per cent respectively.

“Most hedge fund strategies notched gains in July following
June’s decline, but developed markets equity strategies were clear winners,” said
AJ D’Asaro, fund analyst at Morningstar.

“The Morningstar MSCI Developed Markets Hedge Fund Index
advanced 2 per cent in July, extending its year-to-date increase to 6.4 per
cent as Europe and Japan
showed signs of a turnaround and US interest rates stabilized,” he added.

Hedge funds in the US performed particularly well compared
to the rest of the world, as the MSCI North America Hedge Fund Index enjoyed a
2.5 per cent increase, with US small-cap hedge fund strategies climbing 3.3 per
cent in July and 12 per cent for the year-to-date. It remains the top-performer of all the Morningstar MSCI Hedge Fund Indexes, with a 19.8 per cent
increase for the trailing 12 months

In other parts of the world, Europe
came out stronger as the beginning pan-European economic recovery boosted
performance for Europe-focused hedge funds, allowing the index to climb 1.6 per
cent for the month. Conversely, slowing growth and high inflation continues to
plague emerging markets resulting in minor gains for this index.

Morningstar also noted that single-manager hedge funds saw
net outflows of $851 million in June 2013, but have collected $1.3 billion in
net inflows throughout the year. Generally, no hedge fund category received
significant inflows during the month, possibly due to investor fears incited by
market volatility. Multi-strategy hedge funds performed worst, with outflows of
$1.4 billion, while systematic trading strategies continued its poor
performance with outflows for the first half of 2013, now at $3.6 billion.

Morningstar provides independent investment research to the
wealth management industry in North America, Europe, Australia,
and Asia. Its July returns for the MSCI Hedge
Fund Indexes are based on funds that reported as of August 21, 2013, while its
June asset flows are based on funds that reported as of August 15, 2013.