The Hennessee Hedge Fund Index gained 1.82 per cent in July and is up 6.91 per cent year-to-date.
The S&P 500 gained 4.95 per cent in July (+18.20 per cent YTD), the Dow Jones Industrial Average increased 3.96 per cent (+18.28 per cent YTD), and the Nasdaq Composite Index rose 6.56 per cent (+20.10 per cent YTD).
Bonds were also positive on the month, as the Barclays Aggregate Bond Index gained 0.14 per cent (-2.31 per cent YTD).
“Several managers were encouraged to see that USD60bn was redeemed from bond mutual funds in June, with most of it going to savings.” says Charles Gradante, co-founder of Hennessee Group. “That money is building on the sidelines representing new future demand for equities.”
Equity long/short hedge funds were positive in July, as the Hennessee Long/Short Equity Index gained 2.95 per cent (+11.22 per cent YTD). The best performing sectors were health care (+7.09 per cent), industrials (+5.60 per cent), and materials (+5.51 per cent). The underperforming sectors were telecommunication services (-0.74 per cent), consumer staples (+3.88 per cent) and information technology (+4.10 per cent). The risk-on sentiment was back in play as investors reacted to increased M&A activity and positive earnings reports. Short portfolios experienced considerable losses as markets rebounded significantly in July.
“The VIX says it all,” says Gradante. “It started the month around 17 and steadily declined to 12 as of 26 July.”
The Hennessee Arbitrage/Event Driven Index advanced 1.01 per cent in July (+5.82 per cent YTD). The Barclays Aggregate Bond Index rose 0.14 per cent (-2.31 per cent YTD) as interest rates increased in July.
High yield also rose as the Merrill Lynch High Yield Master II Index increased 1.88 per cent (+3.41 per cent YTD). High yield spreads narrowed roughly 50 basis points to end the month 471 basis points over treasuries as investors’ fears over near term stimulus reduction calmed.
The Hennessee Distressed Index added 1.39 per cent in July (+8.31 per cent YTD). Distressed portfolios were positively affected by both a narrowing of credit spreads and strong equity markets.
The Hennessee Merger Arbitrage Index gained 1.66 per cent in July (+5.23 per cent YTD). Managers posted gains as deal spreads narrowed and M&A activity increased through activist, special situation and strategic transactions.
The Hennessee Convertible Arbitrage Index returned 0.11 per cent in July (+3.93 per cent YTD). Convertible arbitrage managers experienced gains amid tighter credit spreads and stronger equity markets.
“The Fed came close to the tapering-cliff’s edge and backed away,” says Dean Rubino, president of Terrapin Asset Management. “And so, under the auspices of just-bad-enough economic data, the asset purchases continue and the market rally goes on.”
The Hennessee Global/Macro Index advanced 0.66 per cent in July (1.64 per cent YTD). The MSCI EAFE Index gained 5.24 per cent (+7.53 per cent YTD). The Hennessee International Index gained 0.65 per cent (+3.86 per cent). Emerging markets were also positive, as the MSCI Emerging Market Index rose 0.77 per cent (-10.20 per cent YTD), while, the Hennessee Emerging Market Index rose 1.87 per cent (+3.42 per cent YTD).
The Hennessee Macro Index increased 0.34 per cent for the month of July (-1.73 per cent YTD).
“One manager who just returned from China has widened his concerns over a credit crisis in China. The manager reported that many banks are offering ‘wealth management’ products promising high interest rates, but often without much, if any, disclosure about how the deposit will be invested. The manager also reported that people think everything is backed by the government, stating ‘as long as the Communist Party remains in power, these products are safe,’” says Gradante.
Fixed income managers had mixed results in July as bond yields increased for the month with the 10-Year US Treasury ending the month at 2.60 per cent. Commodities managed strong gains in the “risk on” environment. The US Dollar extended gains that started in mid June through the early portion of July, however, only to end the month 1.90 per cent lower versus the Euro and 1.03 per cent lower versus the Yen. Gold and silver both reversed course, gaining 7.33 per cent and +0.89 per cent for July, respectively. Crude oil continued higher, gaining 8.91 per cent for the month while natural gas continued to shed its gains from earlier in the year, falling 3.18 per cent for July.