Tue, May 22, 2018
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. News Briefs - Warren Buffett: Target date funds aren't the way to go, Cambridge Analytica could be reborn under a different name[more]

    Warren Buffett: Target date funds aren't the way to go Planning for retirement can be complicated and stressful. This is why target date funds - funds that are managed based on when you expect to retire - are so attractive. Over time, the balance of stocks, bonds and cash evolve automati

  2. Investing - Hedge funds hike Smurfit Kappa positions amid takeover deal hopes, Hedge fund IBV Capital digs deep to unlock long-term value in a competitive market, Eisman of 'The Big Short' fame recommends shorting Deutsche Bank[more]

    Hedge funds hike Smurfit Kappa positions amid takeover deal hopes From Irishtimes.com: Two US hedge funds, Davidson Kempner and York Capital, have accumulated a combined 4.74 per cent interest in cardboard box maker Smurfit Kappa using financial derivatives. It comes as many investors cl

  3. Foundations of hedge fund managers gave big to controversial donor-advised funds[more]

    In the world of philanthropy and tax-deductible charitable giving, the explosion of donor-advised funds has touched off intense debate. Now, there is evidence that the DAF boom is being further fuelled by hedge fund foundation money. Four of the top five foundations that gave the most to large do

  4. Study: For hedge funds, smaller is better[more]

    From Institutionalinvestor.com: The smaller the hedge fund is, the better its performance is likely to be, according to a new study. The study - "Size, Age, and the Performance Life Cycle of Hedge Funds," released April 26 - sought to determine whether a hedge fund's size and age had any effect on i

  5. Hedge fund returns rose in April for first gain since January[more]

    From Bloomberg.com: Bloomberg Hedge Fund Database shows returns flat this year - Currency strategies had the biggest monthly gain at 13% Hedge fund returns increased 0.78 percent in April, reversing two consecutive monthly declines. The swing of 134 basis points was driven by gains in all seven