July 8, 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 +0.64% in June (+11.74% YTD), while the S&P 500 increased +0.02% (+1.78% YTD), the Dow Jones Industrial Average decreased -0.63% (-3.75% YTD), and the NASDAQ Composite Index advanced +3.10% (+16.36% YTD). Bonds also rose, as the Barclays Aggregate Bond Index advanced +0.57% (+1.90% YTD), led by gains in investment grade and high yield sectors.
“Most hedge fund managers are not buying into the ‘Green Shoots’,” commented Charles Gradante, Co-Founder of Hennessee Group. “While markets rallied sharply in April and May, most managers remained conservative. I think we have reached an inflection point as momentum seems to have faded. We should see a return to stock picking based on fundamentals, which are rather negative. In addition, the technicals are also bad, leading us to believe in a summer correction.”
“Hedge funds have outperformed equity benchmarks by a 10% margin in the first half of 2009,” said Lee Hennessee, Managing Principal of Hennessee Group. “The outperformance is largely due to the ability of hedge funds to profit from their short portfolios, as we saw in January and February. While hedge funds are routinely publicized as high risk vehicles, the reality of the situation is that the average hedge fund has demonstrated significantly less volatility than traditional asset classes for the 22 years we have been advising investors.”
The Hennessee Long/Short Equity Index gained +1.10% in June (+10.95% YTD). The equity markets lost momentum in June after experiencing strong gains during the first two months of the quarter. Despite a flat June, the second quarter gain was the strongest quarterly gain since 1998. In June, energy and materials sectors declined as worries mounted that the global economy could experience a drawn out recovery after the World Bank cut the global growth forecast. Managers remain concerned that the recent rally in the financial markets and resurgence in confidence is built on hope supported by government stimulus rather than a real improvement in fundamentals (i.e., employment and housing). Long/short equity funds will continue to rely on individual security selection while maintaining low levels of directional exposure as the official second quarter earnings season gets under way with the Alcoa earnings announcement on July 8th. Many managers are overweight technology in long portfolios, the top performing sector for the month and the year, while maintaining short positions in consumer and financial sectors.
The Hennessee Arbitrage/Event Driven Index gained +1.14% in June (+13.76% YTD). Credit markets continued their strong positive performance in June. Investment grade bonds were up +3.04%. High Yield bonds posted a fourth consecutive month of positive performance in June, gaining +3.21%. The High Yield index has gained +29.4% in the first half of 2009, a record for a six month period. The Hennessee Distressed Index advanced +4.45% in June (+17.16% YTD). The U.S. high yield default rate increased to 9.5%, up from 2.4% a year ago, and is expected to end the year in a range of 15% to 18%. The Hennessee Convertible Arbitrage Index advanced +0.21% (+21.48% YTD). Spreads and secondary market richening made positive contributions, while interest rates and volatility detracted from performance. Managers remain optimistic on the strategy as credit spreads remain wide and volatility is elevated. The Hennessee Merger Arbitrage Index advanced +1.21% in June (+5.33% YTD). Deal activity has significantly declined relative to a year ago. However, a positive for the strategy is that credit conditions have improved significantly compared to six months ago. Managers have found opportunities in strategic acquisition activity as well as distressed merger and acquisition activity.
“The Fed is walking a fine line. On one hand, it is draining bank deposits to buy mortgages. However, on the other hand, it is telling banks to lend,” commented Charles Gradante. “The net result is that there is less liquidity in the banking system today than a month ago.”
The Hennessee Global/Macro Index declined -0.46% in June (+10.77% YTD). International equities were down slightly in June, with the MSCI EAFE Index declining -0.77% (+5.64% YTD). The Hennessee International Index declined -0.49% (+6.84% YTD) as managers remain generally conservative, but suffered losses in Russia and other commodity-linked regions. After three months of strong gains, emerging markets cooled, declining slightly in June, but are substantially positive year to date. China was one of the few bright spots in June as the equity markets continued to advance. The Hennessee Macro Index declined -1.08% in June (+7.10% YTD). While May was a record breaking month for commodities, June brought a sharp pull back. Positions in gold, silver, and agricultural commodities all detracted from performance as prices fell. Managers also suffered losses as the U.S. dollar rallied versus most currencies on speculation that the current market rally has ended and reports that the Fed will not expand its purchases of Treasuries. Oil was a positive, up +5.4% in June; although, many believe that prices are being driven by speculation and expect profit taking as oil is up +56.4% thus far this year.
* For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).
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.
