Hennessee Group, an adviser to hedge fund investors, has announced that the Hennessee Hedge Fund Index increased by 2.88 per cent in October and is up 13.65 per cent in the first 10 months
Hennessee Group, an adviser to hedge fund investors, has announced that the Hennessee Hedge Fund Index increased by 2.88 per cent in October and is up 13.65 per cent in the first 10 months of 2007.
‘As a whole, hedge funds continue to post excellent returns relative to US equities, as the environment has been very conducive to stock-picking in recent months,’ says E. Lee Hennessee, managing principal of the eponymous firm. ‘Exposure to technology and international equities continued to be beneficial to hedge funds in October.’
The Hennessee Long/Short Equity Index advanced 2.84 per cent in October and is up 14.06 per cent for the year. US equities posted marginal gains in October, as a late month rally in anticipation of the US Federal Reserve’s rate cut made up for losses experienced earlier in the month.
‘Should weakness in housing cause a substantial slowdown in consumer spending, equities would clearly be at risk, as consumer spending represents 70 per cent of US GDP,’ says Hennessee’s husband and co-managing principal Charles Gradante. ‘However, the consumer has proven to be very resilient thus far, evidenced by third quarter GDP growth of 3.9 per cent and consumer spending growth of 3.1 per cent.’
The Hennessee Arbitrage/Event Driven Index was up 1.96 per cent in October and 9.32 per cent for the year. Merger spreads continued to tighten after widening substantially throughout the summer. The Hennessee Merger Arbitrage Index rose 2.30 per cent in October and is up 15.65 per cent in 2007 as most managers apparently avoided the small number of broken deals during the month.
Convertible arbitrage experienced its best month of the year, with the Hennessee Convertible Arbitrage Index rising 1.64 per cent and bringing year to date gains to 5.25 per cent. Convertible valuations generally improved, although volatility as measured by the VIX volatility index was lower by month-end. The Hennessee Distressed Index grew 1.91 per cent for the month and was up 9.65 per cent for the year to date, as most credit strategies performed well in October, despite slightly wider credit spreads.
The Hennessee Global/Macro Index advanced 3.87 per cent in October and was up 17.83 per cent for the year as global equity markets, especially in Asia and Europe, posted gains. Notably the Dow Jones China 600 Index is up 158 per cent for the year as liquidity continues to drive the performance of the Chinese stock market.
The Fed’s rate cut on October 31 placed additional downward pressure on the US dollar as the euro reached an all-time high of USD1.457 and sterling reached a 26-year high of USD2.09. Oil prices also reached an all-time high, ending the month at USD96 per barrel.
‘The Federal Reserve appears to have some room to continue lowering rates, as inflation readings indicate prices are rising by 2 per cent per annum and productivity came in strong,’ Gradante says.
‘However, record oil prices and lower interest rates point to slow growth with GDP expected to be less than 2 per cent in coming quarters. The Fed and Treasury’s best move is to sell gold and buy dollars. That would support the dollar and assist the economy.’
Hennessee Group is a financial adviser that offers consulting services to direct investors in hedge funds on asset allocation, manager selection and ongoing monitoring of managers. The Hennessee Hedge Fund Indices, which are calculated solely for benchmarking individual hedge fund manager performance, are calculated from performance data reported to Hennessee by a diversified group of more than 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the indices.
