January 9, 2008 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, today announced that the Hennessee Hedge Fund Index advanced +0.30% in December (+11.64% YTD), while the S&P 500 declined –0.86% (+3.56% YTD), the Dow Jones Industrial Average fell –0.80% (+6.42% YTD), and the NASDAQ Composite Index declined –0.33% (+9.80% YTD). The Lehman Aggregate Bond Index advanced +0.28% (+6.96% YTD).
“December was again a solid month for hedge funds, as most funds were able to hold their own in another difficult equity environment,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “Most strategies posted gains in December and all 23 of the Hennessee Hedge Fund Sub-Indices outperformed the S&P 500 for the year.”
“Equity markets posted their first negative fourth quarter in ten years,” added Charles Gradante, Managing Principal of Hennessee Group.
The Hennessee Long/Short Equity Index advanced +0.25% in December (+12.08% YTD). The financial and consumer sectors continued to be the weakest sectors across the equity markets, while energy and technology were again standout performers during the month. As has been the case throughout the year, there was a high differentiation among industry and stock returns [five sectors were positive and five sectors were negative], creating a good environment for bottom up stock pickers.
“The market continues to price in a higher likelihood of a recession for 2008 and is calling for more rate cuts,” said Mr. Gradante. “Unfortunately, the Fed is in a bind as inflation continues to inch higher as evidenced by last month’s inflation report indicating CPI grew 0.8% in November, the largest increase in over two years. We believe inflation is somewhat out of the Fed’s control and being largely affected by demand for commodities from BRIC countries.”
The Hennessee Arbitrage/Event Driven Index advanced +0.10% in December (+7.78% YTD), as volatility in the equity and fixed income markets again affected arbitrage strategies. Despite widening credit spreads, the Hennessee Distressed Index posted a gain of +0.95% for the month (+8.87% YTD). For the year, high yield credit spreads widened from 2.9% to 5.8% over the 10 Year Treasury although defaults remain at 26 year lows. Widening credit spreads also posed problems for convertible arbitrage funds, as the Hennessee Convertible Arbitrage Index declined
–0.40% (+4.36% YTD). Implied volatility remained at elevated levels, as the VIX ended the year at 22.5. The Hennessee Merger Arbitrage Index declined –0.17% (+11.58% YTD) as a few deals broke and spreads widened as a result of the volatility in equities.
“Macro managers made substantial gains with a three legged trade in 2007 -- short the dollar, long gold, and long oil. The declining dollar and rising oil prices gave way to a 30% increase in the price of gold in 2007,” continued Mr. Gradante. “In 2008, gold may receive demand for other reasons. Gold is the third currency for central bank reserves and central banks are too concentrated in dollars and euros and therefore want to diversify out of dollars and euros into gold.”
The Hennessee Global/Macro Index advanced +0.56% in December (+15.59% YTD). While equities generally declined globally, long/short international funds were able to hold their own, as the Hennessee International Index advanced +0.79% (+20.02% YTD). Macro funds also performed well as the Hennessee Macro Index advanced +2.08% (+15.13% YTD). Strong gains were generated in commodities, especially oil, which approached $100 per barrel, and gold, which eclipsed $800 per troy ounce. The dollar reversed course to rally against both the euro and yen, while Treasury prices were generally flat, despite the fact that the Fed lowered rates by 25 basis points in the month.
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.
