Rallying commodities drove Morningstar Emerging Market Hedge Fund Index 13.5% gains in May,but some indecision has returned in the first half of June

The Morningstar 1000 Hedge Fund Index posted its largest monthly increase in May since its January 2003 inception, rising 6.7 per cent for the month and 9.7 per cent for the first five months of the year.
May was a strong month for the asset-weighted, currency-hedged Morningstar MSCI Hedge Fund Index, which also posted its largest one-month increase since January 2003, rising 3.7 per cent in May and 5.5 per cent for the first five months of the year.
European and developed Asian equity markets outpaced the US in May, but the real surge came from the rebound of emerging market equities. The unhedged Morningstar Emerging Market Hedge Fund Index increased 13.5 per cent, while the currency-hedged Morningstar MSCI Emerging Markets Hedge Fund Index rose 9.8 per cent. These indexes rose 25.2 per cent and 17.6 per cent, respectively, over the last five months.
The US dollar declined against many currencies in May, including those of emerging market countries, triggered by fears of a US government debt downgrade. Potential International Monetary Fund funding also whetted investors' appetite for risk in emerging market countries. The strongest performance was in India, Russia, Eastern Europe, and Brazil, driven largely by their financial and energy sectors.
"Emerging markets saw a large run-up in May, fuelled by US inflation expectations and commodity supply concerns. Hedge fund managers trading in these markets remained cautious, though, believing that the emerging world is still very risky, and sharp corrections are possible," says Nadia Papagiannis, Morningstar hedge fund analyst.

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