Morningstar Advisor - Spring 2007 - (Page 38)

Share with Clients Not All Hedge Funds Are Created Equal Return % 80 S&P 500 Categories •Equity Focus •Equity Net Long •Equity Net Neutral •Equity Variable •Arbitrage •Corporate Life Cycle •Macroeconomic Trends •Combinations •Multi Strategy •Fund of Funds •Relative Value Arbitrage •Corporate Event Driven •Convertible Arbitrage •Distressed Companies •Fixed Income: Arbitrage •Merger Arbitrage •Global Macro •Emerging Markets •Managed Futures 60 40 20 0 10 20 30 40 50 Risk % –20 This data is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Past performance is no guarantee of future results. Full disclosure appears on image after downloading. With hedge funds getting more and more coverage in the media, clients may think they know all about hedge funds, but when it comes down to it, few actually do. We created this image to help you introduce investors to the complexities of hedge funds. Clients can see for themselves the wide range of risk and return characteristics of hedge funds and their categories. The image illustrates the risk and return relationship of all active hedge funds in Morningstar’s database over the past three years. It also highlights the risk and return of the S&P 500, a common benchmark that investors are familiar with. An investor would prefer funds in the upper left quadrant (lower risk and higher return). Conversely, an investor would likely want to limit investments in the bottom right quadrant, which assume greater risk without additional return. The other two quadrants represent a risk/reward trade-off. Some investors may be willing to take on risk for potential greater returns, while others may prefer a lower risk strategy even if it means lower returns. K To download the image, go to http://advisor.morningstar.com/handout. You are free to make as many copies as you wish to use with your clients. 38 Morningstar Advisor Spring 2007 http://advisor.morningstar.com/handout http://advisor.morningstar.com/handout

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Spring 2007

Morningstar Advisor Spring 2007 Features Departments Letter from Joe Mansueto Get to Know Morningstar’s Fund Managers of the Year Is Your Client a Stock or a Bond? Less Alpha, More Beta Than Meets the Eye Your Mileage May Vary A Clear-Eyed Look at Hedge Funds Lower Risk, Higher Returns, What’s Not to Like? Without Cash and Clout, Advisors and Clients Get Short End of Stick Get the Strategy Minus the Headaches Analyzing Funds of Hedge Funds Not All Hedge Funds Are Created Equal A Fund with a (Long) View Laying Low and Prospering A Menu of Ideas to Fill Five Market Baskets Oil and Gas Gushing with Values Mutual Fund Analyst Picks Undervalued Stocks Most Popular Variable Annuities What’s New at Morningstar and on the Web You Can’t Always Get What You Want

Morningstar Advisor - Spring 2007

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