Sun, Feb 26, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Hennessee: The market correction to come - Historical performance of hedge funds in down markets

Monday, November 02, 2009
Opalesque Industry Updates - Hennessee Group LLC, an adviser to hedge fund investors, addresses the rising concern among investors that the financial markets are due for a near term correction in light of the widespread gains experienced in recent months. Charles Gradante, Co-Founder of the Hennessee Group, stated “With the equity markets up over +50% since the lows reached in early March, and ongoing uncertainty regarding the true health of the global economy, we are fielding more and more questions regarding the sustainability of the current market rally and what are our expectations are for hedge funds in a market correction.”

HISTORICAL HEDGE FUND DRAWDOWNS A FRACTION OF EQUITY MARKETS

The Hennessee Group recently conducted a brief study comparing the performance of the Hennessee Hedge Fund Index relative to the performance of the S&P 500 Index dating back to 1993. The Hennessee Group isolated the analysis to the fifteen largest monthly drawdowns in the S&P 500 Index and measured the downside protection provided by hedge funds using the Hennessee Hedge Fund Index as a proxy. As illustrated in the chart below, hedge funds managed to outperform the S&P 500 Index all fifteen months and generated over +100% in outperformance during these periods of panic. Gradante stated, “Hedge funds participated in only about one third of the market downturn which is due, in large part, to their ability to hedge their portfolios and maintain reduced market exposures. In addition, hedge funds generated a -2.67% average monthly loss over these 15 months while the S&P 500 generated an average monthly loss of -9.38%.” Gradante added, “We would expect to see similar results going forward, particularly given the cautious stance of most hedge funds today as uncertainty and nervousness continues to overhang the financial markets and economy.”

Date S&P 500 Price Index Hennessee Hedge Fund Index Differential
Oct-08 -16.94% -6.81% 10.13%
Aug-98 -14.58% -7.10% 7.48%
Sep-02 -11.00% -1.62% 9.38%
Feb-09 -10.99% -1.06% 9.93%
Feb-01 -9.23% -0.91% 8.32%
Sep-08 -9.08% -6.75% 2.33%
Jun-08 -8.60% -1.38% 7.22%
Jan-09 -8.57% 0.58% 9.15%
Sep-01 -8.17% -2.34% 5.83%
Nov-00 -8.01% -2.46% 5.55%
Jul-02 -7.90% -3.09% 4.81%
Nov-08 -7.48% -3.17% 4.31%
Jun-02 -7.25% -2.19% 5.06%
Mar-01 -6.42% -1.48% 4.94%
Aug-01 -6.41% -0.27% 6.14%
Total -140.63% -40.05% 100.58%
Average -9.38% -2.67% 6.71%

CONCLUSION

Hedge funds are on track for one of their best years since the Hennessee Group started monitoring performance since 1987. The Hennessee Hedge Fund Index is up +20.9% through September relative to the +17.0% gain for the S&P 500 Index. Consistent with longer term results, hedge funds managed to protect capital during the market sell-off in early 2009 and have participated in a good portion of the market rally since March. In addition to strong performance, the Hennessee Group is encouraged by the slowdown in redemptions which is restoring stability to hedge fund organizations and allowing them to once again focus on alpha generation for investors. As investors take note of these positive developments we expect to see renewed interest and growth for the hedge fund industry in the coming years. Corporate website: Source

- FG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Institutional investors plan to raise allocations to alternative assets in 2017[more]

    Komfie Manalo, Opalesque Asia: A survey by Context Summits Miami showed that nearly 72% of institutional investors and family offices plan to raise their allocations to alternative asset managers this year, suggesting continued strong demand for the industry. "As many large, brand name f

  2. Comment - Mortgages, mergers and hedge fund fees, Fairholme's Berkowitz responds to court ruling against hedge fund suits of Fannie Mae[more]

    Mortgages, mergers and hedge fund fees From Bloomberg.com: Yesterday the U.S. Court of Appeals for the D.C. Circuit handed down an odd decision in a lawsuit over the government's nationalization of Fannie Mae and Freddie Mac. The key issue is what's called the "Third Amendment," the 2012

  3. Investing - Hedge funds continue to chase the herd in record Momentum wager, Marshall Wace bets grocer Sainsbury may need rights offering, Hedge fund net exposure has started to retreat, David Tepper's Appaloosa fund makes a huge buy, The 10,000-mile journey to Short Australia, Skeptical hedge fund investors grill Evan Spiegel about Snap's I.P.O.[more]

    Hedge funds continue to chase the herd in record Momentum wager From Bloomberg.com: Hedge funds can't get enough of momentum - even if it means embracing an investing strategy they hate. Loosely defined as betting on shares that went up the fastest over the preceding nine-to-12 months, h

  4. Opalesque Exclusive: Swiss investors take fund seeding and acceleration into their own hands[more]

    Benedicte Gravrand, Opalesque Geneva: Banque Bonhote, a 200-year old Swiss private bank, last year launched a community of investors - heads of Swiss family and advisory offices and wealth managers - with the aim of co-investing in the kind of managers they wanted to invest in, either by way of s

  5. K2 Advisors : Why We Like Activist Hedge Fund Strategies and Some Thoughts on Alpha[more]

    Matthias Knab, Opalesque: Rob Christian, Senior Managing Director, Head of Research K2 Advisors, Franklin Templeton Solutions, writes on Harvest Exchange: When d