May 11, 2009 – New York, NY – Hennessee Group LLC, a consultant and adviser to direct investors in hedge funds, announced today that the Hennessee Hedge Fund Index advanced +3.84% in April (+5.02% YTD), while the S&P 500 advanced +9.39% (-3.37% YTD), the Dow Jones Industrial Average advanced +7.35% (-6.93% YTD), and the NASDAQ Composite Index advanced +12.35% (+8.89% YTD). Bonds also advanced, as the Barclays Aggregate Bond Index advanced +0.48% (+0.59% YTD).
“April continued to be a challenging environment for hedge funds, as the market rally was driven by short covering and momentum, rather than changes in fundamentals,” commented Charles Gradante, Co-Founder of Hennessee Group. “While we have seen some improvement in data (most typically that the rate of deterioration is slowing), most funds remain conservatively positioned. Funds are cautious and will wait for fundamentals to improve before significantly expanding their net exposures. ”
“Hedge funds underperformed again in April, but have still outperformed year to date. Volatility remains elevated with the S&P 500 experiencing a gain or loss greater than 8% each month this year,” said Lee Hennessee, Managing Principal of Hennessee Group. “Last year hedge funds did a good job of protecting capital, so they don’t need a huge rally to reach a new high water mark. Equity markets would need to double from current levels to reach their previous high.”
The Hennessee Long/Short Equity Index advanced +3.74% in April (+4.68% YTD). Since March 9th, the equity markets have experienced their strongest rally in 70 years, driven by governments’ and bank CEOs’ announcements that have increased investor confidence and hope for a 2009/2010 recovery. While still cautious about the potential for a global depression, there appears to be some marginal improvement in the economic condition and credit markets have begun to ease. Hedge fund managers were defensively positioned in April with conservative exposures, causing them to underperform equity markets. Short portfolios were especially painful in April, as common short sectors, including financials, consumer discretionary and industrials, rallied stronger than other sectors. On the long side, the top performing sector for the year has clearly been technology.
“A lot of the negatives that have people on the sidelines have already been discounted by the markets,” stated Charles Gradante. “Data coming out is better than expected causing money to come off the sidelines and created a short squeeze. However, at current levels, the market as a whole is trading close to 16 times forward earnings, which is not undervalued. I expect to see a correction in the short term as this market has gotten a head of itself.”
The Hennessee Arbitrage/Event Driven Index gained +4.24% in April (+7.45% YTD). Managers have been optimistic on credit opportunities, including bank debt, high yield, and convertible bonds. These investments performed will in April as spreads tightened significantly. The spread on the Merrill Lynch High Yield Index over 10 Year Treasury tightened from 1703 basis points to 1345 basis points during the month. The Hennessee Distressed Index advanced +7.49% in April (+6.99% YTD) due to spread tightening, a positive carry and event specific opportunities. Managers have been very active and garnered significant attention in the automobile sector, which saw Chrysler enter Chapter 11. The Hennessee Convertible Arbitrage Index advanced +5.58% (+15.34% YTD), and continues to be a top performer for 2009. Tighter spreads made the highest positive contribution to returns in April. Companies are increasingly improving balance sheets by issuing equity and refinancing maturing debt, signs that capital markets are more accessible increased confidence in credit-sensitive convertibles. The Hennessee Merger Arbitrage Index declined -0.71% in April (+1.38% YTD). Merger arbitrage is starting to look more attractive as managers expect the level of deal activity to increase. They are encouraged by the fact deals are being struck across several industry sectors, rather than just the healthcare/pharmaceutical industry, which dominated the first quarter. The $125 billion of global acquisition volume in April represented a decline 57% from a year earlier. However, managers expect merger and acquisition activity by strategic buyers to continue to increase as they take advantage of the lower market valuations to strengthen businesses.
“Macro managers are pressing the reflation trade as it begins to get traction. The Fed’s balance sheet has grown from $900 billion in July 2008 to $2.1 trillion and continues to grow. ,” said Charles Gradante. “Long commodities and short the 7 to 10 year Treasuries is the trade du jour.”
The Hennessee Global/Macro Index advanced +3.48% in April (+2.80% YTD). International equities were up sharply in April as investor’s continued to put money to work, with the MSCI EAFE Index advancing +12.27% (-4.17% YTD). European and emerging markets outperformed their U.S. counterparts. While April was a positive month, managers are still concerned about Europe and believe the health of the banking system is at greater risk than in the U.S. The Hennessee International Index advanced +3.39% (+1.43% YTD) as managers remained conservative with low net exposures. The Hennessee Macro Index advanced +3.68% for the month (+3.65% YTD). Macro managers posted gains as the stock market continued to rally and commodities markets bottomed. Commodities have started to rebound as the CRB Index is up more than 20% from its March low, driven by gains in agriculture and industrial metals. Managers also generated gains short the 10 Year Treasury as yields increased from 2.71% to 3.16%.
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.
