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Hedge funds advance 0.32 per cent in November

The Hennessee Hedge Fund Index advanced 0.32 per cent in November and is up 7.12 per cent year-to-date.

The Hennessee Long/Short Equity Index advanced 0.71 per cent in November (+6.09 per cent YTD). 

While large capitalisation US equities were effectively flat on the month, smaller capitalisation equities rallied, as highlighted by the Russell 2000 index, which closed up 3.4 per cent for November (+16.25 per cent YTD). 

From a sector perspective, the defensive oriented utilities (-3.6 per cent), healthcare (-3.2 per cent) and consumer staples (-1.4 per cent) were the weakest performers during the month, while cyclicals, such as energy (+5.1 per cent) and consumer discretionary (+2.4 per cent), continued to add to their 2010 gains.

“We are seeing more managers with a long term negative outlook on the US markets.  However, many are still maintaining significant positive net long exposure levels,” says Charles Gradante, co-founder of Hennessee Group. “This is because the Fed continues to push investors farther out along the risk curve, which should help drive up stock prices. That said, with earnings announcements largely done until next year, macro events have the ability to shake the markets, as we witnessed in November with renewed concerns about European debt levels. While managers are currently positioned for short term bullishness, many are longer term bears and are looking to build positions that would profit from a decline.”   

Arbitrage and event driven managers were basically flat in November, as the Hennessee Arbitrage/Event Driven Index advanced 0.26 per cent (+9.99 per cent YTD). 

Fixed income markets declined in November with the Barclays Aggregate Bond Index falling 0.57 per cent (+7.70 per cent YTD) and the BofA Merrill Lynch US High Yield Index decreasing 1.08 per cent (+13.20 per cent YTD). 

The corporate bond market saw credit spreads widen by 19 basis points to close the month at 644 basis points over treasuries.

The Hennessee Distressed Index increased 0.41 per cent in November (+10.32 per cent YTD). Distressed managers experienced gains from several event driven opportunities, which were largely offset by losses in long positions as markets declined.

The Hennessee Merger Arbitrage Index declined 0.48 per cent in November (+4.75 per cent YTD). Merger arbitrage managers experienced losses after Canada blocked BHP’s proposed takeover of Potash, a widely held position. Managers remain optimistic that attractive valuations and high cash reserves will lead to more acquisitions. 

The Hennessee Convertible Arbitrage Index declined 0.93 per cent (+9.01 per cent YTD) in November. During the month, positive contributions from secondary market improvement and security selection were offset by widening credit spreads and higher interest rates. Managers were encouraged to see robust new convertible issuance in November, including a large convertible preferred from General Motors.

The Hennessee Global/Macro Index declined 0.61 per cent in November (+5.98 per cent YTD). The international equity markets declined in November as the MSCI World Index lost 2.35 per cent (+2.15 per cent YTD) for the month. Losses were driven by European markets, which sold off significantly after sovereign debt fears re-emerged in Ireland as well as Spain and Portugal.

The Hennessee International Index fell 0.05 per cent for the month (+9.04 per cent YTD), while the Hennessee Emerging Markets Index lost 1.50 per cent (+8.92 per cent YTD). 

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