Opalesque Industry Update – Hennessee Group LLC announced today that the Hennessee Hedge Fund Index advanced +0.28% in April 2013 (+5.09% YTD), while the S&P 500 advanced +1.81% (+12.02% YTD), the Dow Jones Industrial Average increased +1.79% (+13.24% YTD), and the NASDAQ Composite Index climbed +1.88% (+10.25% YTD). Bonds also advanced, as the Barclays Aggregate Bond Index increased +1.01% (+0.89% YTD).|
“Hedge funds were positive in April as long positions performed well. The markets remain in ‘risk-on’ mode,” commented Charles Gradante, Co-Founder of Hennessee Group. “Economic data remains in a 'goldilocks' zone, weak enough to justify continued stimulus but strong enough to keep expectations positive.”
"Correlations among stocks has dropped from a high of 80% in 2012 to the lowest level since 2007 at 60%. Any company specific factors are now more likely to drive stock selection than any other time in the past 6 years,” said Lee Hennessee, Managing Principal of Hennessee Group. “This should benefit hedge fund managers.”
Equity long/short underperformed in April, as the Hennessee Long/Short Equity Index declined -0.17% (+5.71% YTD). The U.S. economy grew 2.5% during the first quarter of 2013, according to the Bureau of Economic Analysis, a pace that was weaker than expected. Risk assets continue to be supported by global monetary easing. Broad equity markets continued to rally, reaching all time highs. The best performing sectors were telecommunication services (+5.99%), utilities (+5.89%), and consumer staples (+2.90%). The worst performing sectors were energy (-0.88%) and industrials (-0.84%). Managers have increased their net exposures, but remain concerned about the removal of stimulus and weaker than expected economic data.
“The unemployment report at the end of April caused a sell-off in the 5 year bond with those proceeds moving into equities setting all time highs and prompting many hedge funds to increase beta exposure, believing that the rotation out of bonds and into stocks has begun,” stated Charles Gradante.
The Hennessee Arbitrage/Event Driven Index advanced +0.87% in April (+4.5% YTD). The Barclays Aggregate Bond Index advanced +1.01% (-0.12% YTD). Yields on Treasuries were relatively flat, with the 10 Year Treasury yield declined to 1.70%. The Merrill Lynch High Yield Master II Index returned +1.86% (+4.81% YTD). High yield spreads declined to 455 basis points over treasuries. The Hennessee Distressed Index increased +1.62% in March (+5.47% YTD). Distressed portfolios benefited from position specific catalysts and the broad market rally. The Hennessee Merger Arbitrage Index advanced +1.29% in April (+3.85% YTD). Managers posted modest positive gains as M&A activity continued. The Hennessee Convertible Arbitrage Index returned -0.04% in April (+1.65% YTD). Managers were flat as equity market gains and spread tightening were offset by catalyst specific situations.
“Speculators raised their net-long position by 19 percent to 54,762 futures and options as of April 30, reported by U.S. Commodity Futures Trading Commission,” commented Charles Gradante. “Holdings of short contracts retreated 9.2 percent, the most since March 19.”
The Hennessee Global/Macro Index advanced +0.80% in March (+5.07% YTD). Global financial markets continued to rally through March, extending their gains, as developed markets outperformed emerging markets. The MSCI EAFE Index rose +4.74% (+9.33% YTD). U.S. and Japanese equities continued to outperform. International hedge fund managers were also positive, as the Hennessee International Index increased +1.37% (+7.30%). Emerging markets were up modestly, as the MSCI Emerging Market Index advanced +0.44% (-1.49% YTD). Emerging market hedge funds also struggled relative to developed market counterparts, as the Hennessee Emerging Market Index advanced +0.73% (+3.12% YTD). The Hennessee Macro Index advanced +0.06% for the month (+2.32%). Managers experienced gains long global equities and short commodities, specifically metals, which declined sharply. Long fixed income generated gains as yields declined. The Euro strengthened against the U.S. dollar, while the Yen continued to weaken.