Morningstar Categories

The Morningstar Category classifications for Hedge Funds were introduced in 2005 and revised in 2007 to help investors understand the different types of investment strategies used by hedge funds around the world. Hedge fund managers typically focus on specific areas of the market and/or specific trading strategies. For example, some hedge funds buy stocks based on broad economic trends, while others search for arbitrage profits by pairing long and short positions in related securities. The Morningstar categories divide the universe of hedge funds based on these different approaches.

Morningstar supports 17 hedge fund categories, which map into five broad category groupings (Equity, Arbitrage, Global, Event, and Multi-Strategy). These categories and category groupings can help investors make meaningful comparisons between hedge funds. Investors can use these peer groups to identify top-performing funds, evaluate a fund�s performance against its peers, and find similar funds. For example, if an investor wanted to evaluate how well a fixed-income arbitrage fund performed, they could compare its performance to that of the fixed-income arbitrage category and the broad arbitrage category grouping.

Morningstar assigns a category to each hedge fund based on a review of the hedge fund�s memorandum document, manager-provided investment strategy descriptions and supporting data, conversations with portfolio managers, cluster analysis, and portfolio statistics acquired via surveys. Currently, Morningstar does not have access to portfolio holdings for hedge funds and must instead rely on other information provided by the asset managers.

We regularly review the category structure and the hedge funds within each category to ensure that the system meets the needs of investors.

Morningstar Hedge Fund Categories