The Hennessee Hedge Fund Index advanced +5.68 per cent in May and is up +11.40 per cent year-to-date, according to Hennessee Group.
The Hennessee Hedge Fund Index advanced +5.68 per cent in May and is up +11.40 per cent year-to-date, according to Hennessee Group.
The S&P 500 increased +5.31 per cent in May (+1.76 per cent YTD), the Dow Jones Industrial Average advanced +4.07 per cent (-3.14 per cent YTD), and the Nasdaq Composite Index advanced +3.32 per cent (+12.52 per cent YTD).
Bonds also rose, as the Barclays Aggregate Bond Index advanced +0.73 per cent (+1.33 per cent YTD).
Charles Gradante (pictured), co-founder of Hennessee Group, says the 20 year secular bull market in bonds is over: ‘We see a problem growing in the bond market. The government is issuing more debt than it is buying back. This has to lead to rates increasing and equity PE ratios adjusting downward. Our contacts among hedge fund managers continue to buy gold and short Treasuries. However, Hennessee Group expects the Treasury and Fed to put a short squeeze on at an opportune time.’
The Hennessee Long/Short Equity Index gained +5.23 per cent in May (+10.13 per cent YTD). Long/short equity managers slightly underperformed the S&P 500 while maintaining reduced exposure levels and hedges. Managers have been maintaining a conservative investment strategy, which has caused them to lag in the recent market rally.
In May, funds also benefited from long positions in energy and commodity-related positions, which performed strongly. With the equity markets up more than +25 per cent from their March bottom and without real economic fundamental improvement, managers remain bearish and are defensively positioned.
However, managers are attempting to balance a fear of not participating in the market rally with real concerns about long term fundamentals. As a result, managers are focusing on keeping portfolios extremely liquid realising that they may need to change positioning quickly.
‘With hedge funds up +5.68 per cent, May was the best month for hedge funds since February 2000, when the index was up +6.83,’ says Lee Hennessee, managing principal of Hennessee Group. ‘Gains were largely driven by arbitrage strategies. However, long/short equity managers, with reduced levels of exposure, also performed well, participating significantly in the market rally while maintaining hedges. With a market correction in the short term being a possibility, we feel that most hedge funds are positioned conservatively and will be able to quickly alter exposures to protect capital if the market experiences a correction.’
The Hennessee Arbitrage/Event Driven Index gained +6.01 per cent in May (+14.51 per cent YTD). The Hennessee Distressed Index advanced +5.35 per cent in May (+13.47 per cent YTD) due to spread tightening, a positive carry and event opportunities, specifically GMAC and MGM.
The Hennessee Convertible Arbitrage Index advanced +8.61 per cent (+25.67 per cent YTD), and remains the top performing hedge fund index for 2009.
