Hedge funds are on track for one of their best years since the Hennessee Group started monitoring performance since 1987, according to a study by the group.
The Hennessee Hedge Fund Index is up 20.9 per cent through September relative to the 17.0 per cent gain for the S&P 500 Index.
Consistent with longer term results, hedge funds managed to protect capital during the market sell-off in early 2009 and have participated in a good portion of the market rally since March.
In addition to strong performance, the Hennessee Group is encouraged by the slowdown in redemptions which is restoring stability to hedge fund organisations and allowing them to once again focus on alpha generation for investors.
As investors take note of these positive developments Hennessee expects to see renewed interest and growth for the hedge fund industry in the coming years.
The study was carried out to address the rising concern among investors that the financial markets are due for a near term correction in light of the widespread gains experienced in recent months.
Charles Gradante, co-founder of the Hennessee Group, says: “With the equity markets up over 50 per cent since the lows reached in early March, and ongoing uncertainty regarding the true health of the global economy, we are fielding more and more questions regarding the sustainability of the current market rally and what are our expectations are for hedge funds in a market correction.”
The Hennessee Group conducted a study comparing the performance of the Hennessee Hedge Fund Index relative to the performance of the S&P 500 Index. It found that hedge funds managed to outperform the S&P 500 Index in all 15 months studied and generated over 100 per cent in outperformance during the periods of panic.
Gradante says: “Hedge funds participated in only about one third of the market downturn which is due, in large part, to their ability to hedge their portfolios and maintain reduced market exposures. In addition, hedge funds generated a -2.67 per cent average monthly loss over these 15 months while the S&P 500 generated an average monthly loss of 9.38 per cent.
“We would expect to see similar results going forward, particularly given the cautious stance of most hedge funds today as uncertainty and nervousness continues to overhang the financial markets and economy.”