Thu, Oct 8, 2015
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


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. U.S. hedge funds prepare for worst finish this year since 2008[more]

    Komfie Manalo, Opalesque Asia: U.S.-focused hedge funds are preparing for their worst year since the 2008 global financial crisis, following a series of letdown including the market sell-off in August and the sell-off in healthcare and biotechnology sectors last month, reported

  2. Investing - AQR Capital and Renaissance Technologies raise stakes in Southwest Airlines[more]

    From In the previous part of this series, we saw how institutional investors played Southwest Airlines (LUV) in 2Q15. Now let’s move on to the trades executed by key hedge funds in Southwest Airlines over the same period. … Most of the hedge funds that had significant exposu

  3. Manager Profile - Pimco alternative funds flourish as 30-year bond rally fades[more]

    From Inside Pacific Investment Management Co., the bond behemoth that lost two chief investment officers last year and saw almost $500 billion of client money leave, a hidden profit engine is easing some of the pain. For more than a decade, Newport Beach, California-based Pimco has qu

  4. Niche Investing - Art investment funds: Attracting institutional and other new investors[more]

    From The Deloitte/ArtTactic Art and Finance Report 2014 (the "Art and Finance Report") noted that the "global art investment fund market was estimated to be worth at least $1.26 billion in the first half of 2014." This seems almost inconsequential when juxtaposed with the $54 billion of

  5. DoubleLine’s Jeffrey Gundlach warns of another round of market shakedown[more]

    Komfie Manalo, Opalesque Asia: DoubleLine Capital co-founder Jeffrey Gundlach is painting a bleak future as he warned that the U.S. equity market and other risk markets, such as high-yield "junk" bonds, are facing another round of selling pressure. Gundlach said in an interview with