March 16, 2015 – New York, NY – Hennessee Group LLC announced today that the Hennessee Hedge Fund Index gained +2.30% in February (+2.33% YTD), while the S&P 500 jumped +5.49% (+2.21% YTD), the Dow Jones Industrial Average rose +5.64% (+1.74% YTD), and the NASDAQ Composite Index leaped 7.80% (+4.80% YTD). Bonds were negative on the month, as the Barclays Aggregate Bond Index decreased 0.94% (+1.14% YTD).
“February was a solid month for stocks, with gains broadly across global markets largely due to the reduction of interest rates or easing monetary policy by over 20 central banks, with the ECB leading the pack.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “While global markets rallied on this news, many feared that these collective actions would not ease the disinflationary trends. Many managers commented that “few companies, whether in the U.S. or abroad, have pricing power.”
"The top three strategies for the month were Growth (+4.75%), Europe (+3.89%) and Opportunistic (+3.77%).” highlighted Charles Gradante. "The bottom three strategies for the month were Short Biased (-5.34%), Market Neutral (-0.18%) and Macro (+0.19%).”
“However, the biggest story among hedge funds is the speed with which the Euro and oil have declined. This rapid shift in real and perceived terms has made hedge fund managers very defensive and even more on edge about possible market consequences than characteristic for the investment class.” highlighted Charles Gradante.
During February the VIX moved steadily lower as global markets and risk assets rose higher. The VIX started the month up near 20, however, as volatility subsided and markets rebounded after a weak January, the VIX ended the month near 13, a decline of over 30%. “The phenomenon of having a historically low VIX coupled with very large daily market swings has managers perplexed. More than one manager commented that equity bid-offer spreads are widening to the offer side and the credit defaults swap market spreads are widening at a faster rate than the corresponding equity spreads, sending hedge funds to the drawing boards once again.” noted Charles Gradante.
Equity long/short hedge funds were positive for the month, as the Hennessee Long/Short Equity Index gained +2.75% (+1.77% YTD). The best performing sectors were consumer discretionary (+8.46%), information technology (+7.89%), and materials (+7.82%), while underperforming sectors were utilities 6.96%), energy (+3.51%) and health care (+4.13%). The materials sector is the best performing sector for the year having gained +5.68% YTD through February, while utilities is bringing up the rear, having lost -4.78% YTD over the same time period.
“Complicating matters further for hedge fund managers was February’s earnings and guidance reports.” reported Charles Gradante. “February is an important month annually for earnings and sets the tone for the next quarter. Hedge funds were not impressed with February’s S&P 500 earnings nor guidance and promptly reduced exposures during the month as only 60% of S&P 500 companies beat quarterly earnings and 80% guided down for 2015. Managers lamented that the market rally in 2014 was largely on PE multiple expansion. This coupled with downward guidance for 2015 has forced hedge fund managers to be less sanguine about the market and reduce exposures going into March.”
The Hennessee Arbitrage/Event Driven Index increased +1.88% for the month (+1.56% YTD). The Barclays Aggregate Bond Index lost -0.94% (+2.10% YTD) as interest rates were higher for the month. High yield increased as the Merrill Lynch High Yield Master II Index gained +2.39% in February (+3.09% YTD). High yield spreads were lower in February, decreasing 80 basis points to end the month 446 basis points over treasuries. The Hennessee Distressed Index was positive for the month by +1.75% (-0.83% YTD). The Hennessee Merger Arbitrage Index gained +1.36% for the month (+1.83% YTD). The Hennessee Convertible Arbitrage Index was also positive for the month, losing +1.58% (+0.99% YTD).
“Global macro managers knew the Euro would drop and the dollar would strengthen but they did not expect the speed of the unprecedented drop. Not since the dollar dropped against the yen in the 1980’s have we seen a currency decline as fast as we have seen with the Euro. The speed of the decline in the Euro and oil has macro managers on alert for the collateral damage. In particular, macro managers are analyzing the Bank of Japan’s bloated balance sheet. stated Charles Gradante. The dragged-out fears of a Greece departure from the Euro were dropped from media narratives (as predicted), oil prices bounce off lows, February delivered a strong U.S. jobs report, and earnings season finished on a high note with over 60% of S&P 500 companies beating expectations. Any if that wasn’t enough, central banks stepped in to give investors even more reason to line up for equities. In the past month, over 20 central bank have cut interest rates or eased monetary policy, with the most notable change coming from Europe’s implementation of quantitative easing (QE) programs.”
The Hennessee Global/Macro Index gained +2.00% in February (+3.77% YTD). The Dow Jones UBS Commodity Index was higher in February, gaining +2.57% (-0.85% YTD), while the MSCI ACWI Index gained +5.40% (+3.68% YTD) and the MSCI EAFE Index gained +5.81% (+6.27% YTD). The Hennessee International Index gained +2.81% for the month (+4.92%). The MSCI Emerging Market Index gained +2.98% (+3.55% YTD), while hedge fund managers slightly underperformed the index, as the Hennessee Emerging Market Index gained +2.97% (+2.70% YTD).
The Hennessee Macro Index increased +0.19% for the month of February (+4.01% YTD). Fixed income managers were negative in February as bond yields were higher for the month with the 10-Year U.S. Treasury ending the month at 2.0%, up 32 basis point from 1.68% in January. Commodities were mixed in February after a steep selloff in oil during January, with WTI oil gaining +4.29% and European Brent Blend Crude rising +30.24%. Natural gas was negative in February, ending the month with a loss of -3.13%.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data obtained from publicly available information, internally developed data and other third party sources believed to be reliable. The Hennessee Hedge Fund Index is an equally-weighted average of the funds in the Hennessee Hedge Fund Indices®. Hennessee Group has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness, or reliability of such information. Past performance is no guarantee of future returns.