July 10, 2007 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, today announced that the Hennessee Hedge Fund Index advanced +0.88% in June (+8.71% YTD), while the S&P 500 decreased -1.78% (+6.02% YTD), the Dow Jones Industrial Average declined -1.61% (+7.58% YTD), and the NASDAQ Composite Index declined -0.05% (+7.78% YTD). The Lehman Intermediate Government/Corporate Bond Index advanced +0.02% (+1.45% YTD).
“Despite significant losses incurred by several funds focusing on mortgage backed securities, it was generally a very good month for hedge funds,” said E. Lee Hennessee, Managing Principal of Hennessee Group LLC. “Of note, many long/short equity funds actually benefited from the collapse in sub-prime mortgages via their short exposure to lenders and ABX indices.”
The Hennessee Long/Short Equity Index advanced +0.84% in June (+8.43% YTD). Stocks sold off in June due to rising interest rates and concerns about the mortgage and corporate bond markets. Long/short equity funds performed well largely due to excellent performance of short portfolios focused on housing and mortgage deterioration. Indices of sub-prime mortgage backed securities declined across the board, with lower-rated traunches falling by as much as -20% during the month.
“Hedge fund managers were focused on the 10 Year Treasury yield when it hit 5.26% in mid-June,” said Charles Gradante, Managing Principal of Hennessee Group LLC. “Nonetheless, most believe that equities still remain attractive relative to bonds. Since 1989, the S&P 500 earnings yield has averaged 0.7% below the 10 Year Treasury yield. Today, the earnings yield is 0.8% above the 10 Year Treasury yield.”
The Hennessee Arbitrage/Event Driven Index increased +0.19% in June (+7.61% YTD), as it was a relatively difficult period for most arbitrage strategies due to widening high yield corporate credit spreads. The spread on the Merrill Lynch High Yield Index widened from 2.6% to 2.9% over the 10 Year Treasury in June, as bond investors realized that they were not being compensated for the amount of risk they were assuming in the form of more leveraged balance sheets. The Hennessee Distressed Index declined –0.32% (+8.90% YTD). While merger and acquisition activity remained robust in June, the Hennessee Merger Arbitrage Index declined –0.20% (+9.78% YTD), as merger spreads widened following concerns about the ability of several LBOs to secure debt financing. The Hennessee Convertible Arbitrage Index advanced +0.21% (+5.01% YTD), as credit related losses were offset by gains from an increase in implied volatility.
The Hennessee Global/Macro Index advanced +1.73% in June (+10.16% YTD). International equities sold off alongside the U.S. equity markets, although the Hennessee International Index outperformed by advancing +0.96% (+10.68% YTD). The Hennessee Macro Index advanced +2.09% in June (+7.51% YTD), as many managers benefited from higher Treasury yields and continued decline in the Japanese yen, which hit an all-time low versus the euro, a 15-year low versus the sterling, and a 5-year low versus the U.S. dollar. The yield on the 10 Year Treasury Note rose from 4.90% to 5.03%, after hitting a high of 5.26% at mid month.
“The carry trade is coming back strongly as evidenced by the yen hitting record lows versus most major currencies,” continued Mr. Gradante. “The carry trade at the expense of the yen remains an over-riding theme by most macro managers.”
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group’s website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group’s database of over 3,500 hedge funds and are net of fees and unaudited. Past performance is no guarantee of future returns. ALL RIGHTS RESERVED. This material is for general information only and is not an offer or solicitation to buy or sell any security including any interest in a hedge fund.
