Tue, 12/06/2007 - 06:57
The Hennessee Hedge Fund Index increased by 2.45 per cent in May and is up by 7.86 per cent for the first five months of 2007, according to Hennessee Group, a registered adviser to hedge fund investors.
However, the firm noted, the hedge fund index lagged all the major US equity market indices for the month and in most cases for the year. The S&P 500 rose 3.26 per cent in May and by 7.94 per cent for the year to date, while the Dow Jones Industrial Average was up by 4.32 and 9.34 per cent respectively and the Nasdaq Composite by 3.15 per cent and 7.84 per cent.
'All hedge fund strategies posted positive returns in May, with the exception of short-biased funds,' says the firm's co-managing principal E. Lee Hennessee. 'The strong performance is an indication that many funds have expanded their net exposures and become more fully invested, although short selling has again become more difficult over the last two months.'
The Hennessee Long/Short Equity Index rose by 2.39 per cent in May and was up 7.37 per cent so far in 2007 as equity markets maintained their recent momentum, the S&P 500 reached an all-time high and the DJIA extended its run into record territory. However, equities have retreated in early June, reflecting increased concerns about inflation, interest rates and volatility in the Chinese equity markets.
'Leveraged buyout activity has been one of the underpinnings of the stock market's rally in the past year,' says Charles Gradante, the other managing principal of Hennessee Group. 'Should bond yields continue to increase, LBO activity could be somewhat curtailed, posing a risk to equity prices.'
The Hennessee Arbitrage/Event Driven Index increased 1.79 per cent in May and by 7.46 per cent in 2007 to date, as credit, convertible, and event-driven strategies all posted strong returns, while the Hennessee Distressed Index gained 2.36 per cent over the month and 9.52 per cent for the year as corporate bond spreads continued to tighten.
Merger and acquisition activity remained robust, with several large leveraged buyouts and a number of strategic mergers announced, helping the Hennessee Merger Arbitrage Index to gain 1.90 per cent in May and reach 9.19 per cent for the year. The Hennessee Convertible Arbitrage Index advanced was up by 1.28 and 5.05 per cent respectively as convertible issuance was again robust.
The Hennessee Global Macro Index advanced by 3.09 per cent in May and by 8.73 per cent for the year, while the strength of international equities helped the Hennessee International Index to gain 2.91 per cent and 9.57 per cent respectively, led by excellent performance in Latin America.
The Hennessee Macro Index rose by 3.22 per cent in May and was up 6.30 per cent for the year, its largest monthly increase since 2003. In addition to contributions from long equity exposure, macro funds also benefited from a back-up in Treasury yields, as the 10-year yield rose from 4.6 to 4.9 per cent.
'The Hennessee Group is concerned about China,' Gradante says. 'China's GDP is 80 per cent export-related with insufficient internal consumption. Furthermore, we're concerned that China's economy is overheating, the stock market is a bubble, real interest rates are negative with 2.5 per cent interest on savings and 3 per cent inflation, and government-owned banks have a lending problem.'
As a registered investment adviser, Hennessee Group advises direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of managers. The firm calculates the Hennessee Hedge Fund Indices from performance data reported by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices, derived from the group's database of more than 3,500 hedge funds, and is net of fees and unaudited.
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