Tue, Sep 30, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Hedged equity investing pays off for investors as Hennessee Index gains +88.3% over 10 years versus S&P 500 decline of -23.33%

Tuesday, January 19, 2010
Opalesque Industry Updates - Hennessee Group LLC, a consultant and adviser to direct investors in hedge funds, announced today that the Hennessee Hedge Fund Index gained +88.30% over the last decade (January 2000 to December 2009), while the S&P 500 declined –23.33%, the Dow Jones Industrial Average fell –9.30%, and the NASDAQ Composite Index declined –44.24%.

“With one of the most challenging decades coming to a close, I feel hedge funds performed admirably,” said Mr. Gradante, Co-Founder of Hennessee Group. “It is very clear to the Hennessee Group that the hedge fund strategy is here to stay and that allocations to hedge funds should be increased as the next decade will have even more severe risk issues to deal with then the past decade.”

“There has been a lot of talk about the ‘lost decade’ for stocks [referring to the fact that investors lost money in stocks over the last decade]. However, there has not been much said about the performance of hedge funds,” said Mr. Gradante. “While stocks actually declined in value at an annualized rate of -2.62% per year [for the S&P 500], hedge funds posted an annualized positive return of +6.54%.”

“Not only did hedge funds outperform stocks on a relative basis by more than +9% per year versus the S&P 500, they did so with significantly less volatility,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “Hedge funds exhibited a standard deviation of 6.8% over the last decade while the S&P 500 had a standard deviation of 16.1%.”

Down market performance
In analyzing the performance of the Hennessee Hedge Fund Index, the ability to outperform over the past ten years was in large part due to the ability to minimize drawdowns. The Hennessee Hedge Fund Index experienced only two down years (2002 and 2008), while the S&P 500 had four down years (2000, 2001, 2002, and 2008).

This is also evident when analyzing the monthly returns of the Hennessee Hedge Fund Index versus the S&P 500. In months when the S&P 500 generated a positive return, hedge funds were able to capture slightly more than 50% of the upside (+1.6% for the Hennessee Hedge Fund Index versus +3.0% for the S&P 500). In months when the S&P 500 declined in value, hedge funds only participated in -20% of the loss (-0.8% for the Hennessee Hedge Fund Index versus -4.2% for the S&P 500). This ability to protect capital in the down markets allowed hedge funds to average a positive monthly return of +0.5%, while the S&P 500 declined in value at an average monthly rate of -0.1%. This helped hedge funds compound higher absolute returns relative to traditional equity benchmarks with less volatility.

“This down market analysis demonstrates that you do not need to outperform in up months in order to outperform,” said Mr. Gradante. “The most value-added characteristic of hedge funds is their down side risk management, which is really where they generate alpha.”

Hedge fund strategies & managers
By selecting either the top performing hedge fund strategies or by selecting the top performing hedge fund managers, investors were able to outperform the overall Hennessee Hedge Fund Index and other benchmarks by a significant margin.

The top performing strategies over the past decade were: 1) Financial Equities funds, which performed well in 2008, as they were able to foresee many of the financial problems and generate gains shorting, and well in 2009 participating in a sharp snapback; 2) Healthcare and Biotech funds, which posted outsized years in 2000, 2003 and 2009; and 3) Distressed funds, which posted strong performance after default cycles in 2003, 2004 and 2009. This analysis also demonstrates the need for experienced hedge fund manager selection. An average hedge fund that performed in the top half of the Hennessee Hedge Fund Index each year over the past ten years significantly outperformed a hedge fund that performed in the bottom half. Corporate website: Source

kb

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. Socially responsible investments grow in demand, but performance questions persist[more]

    Komfie Manalo, Opalesque Asia: A study by financial services firm TIAA-CREF showed that interest in socially responsible investing (SRI) is increasing rapidly, but investors are still asking if investing in an SRI strategy

  2. Regulatory - Ireland launches structure for passporting loan origination funds within EU[more]

    From Asiaasset.com: The Irish Funds Industry Association (IFIA) has introduced new loan origination capabilities that will offer Asian managers and investors a new structure under the European Union’s (EU’s) Alternative Investment Fund Managers Directive (AIFMD). The new structure will allow the mar

  3. Europe - Ed Miliband's war on hedge funds could damage City of London[more]

    From Telegraph.co.uk: Ed Miliband’s plans to wage war on hedge funds could be potentially more damaging to the City of London than even the financial transaction tax (FTT), senior banking sources warned on Tuesday night. The Leader of the Opposition took aim at a number of industries as part of his

  4. News Briefs - SEC probes Pimco ETF over pricing irregularities, BEPs: Action plan released and UK first to adopt country-by-country reporting[more]

    SEC probes Pimco ETF over pricing irregularities The Securities and Exchange Commission is investigating Pimco’s pricing of exchange traded funds, the latest cloud to hang over the world’s largest bond manager, which has been dogged by poor performance and management infighting. Pimco on

  5. CalPERS’ move might alter hedge fund fees for good[more]

    Benedicte Gravrand, Opalesque Geneva: When CalPERS, the California Public Employees’ Retirement System, announced on September 15th that it was unwinding its hedge-fund portfolio, it was seen by many as is a significant blow to the sector’s appeal. The Fund is