Wed, Aug 20, 2014
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. Private equity follows hedge funds into reinsurance for long-term capital[more]

    From Artemis.bm: It’s not just hedge funds that are entering the insurance and reinsurance market in search of so-called long-term capital to put to work in their strategies, private equity firms targeting the space are also seeking opportunities to add assets under management. The entry of large pr

  2. North America – New York City’s next hot neighborhoods targeted with property funds[more]

    From Bloomberg.com: New York’s real estate world is filled with tales of ordinary people who bought property decades ago and saw values skyrocket to the millions. Seth Weissman is seeking investors to get in early on the next hot neighborhoods. The veteran of Goldman Sachs Group Inc. and hedge

  3. Investing – George Soros bets $2bn on stock market collapse, Warren Buffett's Berkshire reveals Charter stake, cuts DirecTV, Hedge funds lusting to cash out of MGM, Top hedge fund managers are buying Ally Financial, Hedge funds dumped 5m Herbalife shares in Q2, Paulson & Co hedge fund ups Puerto Rico real estate bet, Netflix Inc., Citigroup Inc, Google Inc are top new picks in Tiger Management’s 13F[more]

    George Soros bets $2bn on stock market collapse From Newsmax.com: Billionaire investor George Soros has increased his financial bet that U.S. stocks will collapse to more than $2 billion. The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Inde

  4. Institutions – Texas Employees sets 2015 tactical plan for alternatives, CalPERS' real estate consultant cautions the pension fund's investment committee, Why Sunsuper likes hedge funds[more]

    Texas Employees sets 2015 tactical plan for alternatives From PIOnline.com: Texas Employees Retirement System will invest in up to four new hedge funds in the next fiscal year, which begins Sept. 1. Trustees approved 2015 tactical investment plans for the hedge fund, private equity and in

  5. Investors now net short S&P500 and increased Russell shorts, technicals suggest further selling[more]

    Komfie Manalo, Opalesque Asia: Market Neutral funds increased their market exposure to -1% net short from -6% net short last week, according to Bank of America Merrill Lynch’s Hedge Fund Monitor. The report also added