Sun, Jul 23, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Hennessee Hedge Fund Index declines 1.35% in June (+0.20% YTD)

Thursday, July 08, 2010
Opalesue Industry Update - Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index declined –1.35% in June (+0.20% YTD), while the S&P 500 decreased –5.39% (-7.57% YTD), the Dow Jones Industrial Average declined -3.58% (-6.27%), and the NASDAQ Composite Index fell -6.55% (-7.05% YTD). Bonds advanced, as the Barclays Aggregate Bond Index increased +1.57% (+5.33% YTD), due to increases in Treasuries, Investment Grade and High Yield bonds.

“The rebound from the worst recession since the 1930’s faces added risks from Europe’s debt crisis causing managers to remain intently focused on Europe,” commented Charles Gradante, Co-Founder of Hennessee Group. “Increased bank funding stress and declining liquidity have been the main catalyst for the recent correction in global risk assets. Managers question the ability of some EU governments to bail out their banks when they are having difficulty funding sovereign debt, as credit default swaps for sovereign debt have widened at the same pace as credit default swaps for bank debt.”

“As in May, hedge funds continued to decline, amid a broad based reduction of risk and significant volatility. Hedge fund risk management performed well, with hedge funds declining only one-fourth of traditional benchmarks,” said Lee Hennessee, Managing Principal of Hennessee Group. “Managers remain cautiously positioned and expect volatility to continue. While many feel that the market could rally sharply to the upside on positive news, most remain unwilling to assume greater levels of risk in the current environment until they see stabilization.”

The Hennessee Long/Short Equity Index declined –1.70% in June (-0.14% YTD). The U.S. equity markets plunged further in June as investors continued to flee risk assets due to growing doubts regarding the ongoing European sovereign debt crisis, the strength of the global economic recovery and high unemployment domestically. Small cap stocks were hit particularly hard in June with the Russell 2000 Index down -7.9% (-2.5% YTD). While all ten S&P 500 sectors finished the month in the red, recently released economic data, particularly non-farm payrolls, suggested the economic recovery could be losing steam and weighed heavily on the more cyclical sectors; the consumer discretionary and materials sectors were the largest decliners during the month, down -9.8% and -7.1%, respectively. As was the case in May, hedge funds struggled to generate positive returns for investors due to the highly correlated, broad based sell off of risk assets during the month. That said, they still outperformed the broader indices on a relative basis. While valuations are beginning to look attractive, hedge fund managers have reduced risk and continue to emphasize capital protection due to ongoing macro issues and heightened volatility in the financial markets.

“I think managers are somewhat perplexed by the current investment environment. Many view stocks to be attractively priced with low price-to-earnings ratios. However, these PE multiples are lower than what one would expect given current interest rate. Recent earnings reports have been relatively good, and companies have provided somewhat optimistic guidance for the remainder of the year,” commented Charles Gradante. “However, on the other hand, managers are questioning what the true values of stocks are in an environment where most developed countries have insurmountable debt with a sovereign default being a real possibility and not just speculation.”

The Hennessee Arbitrage/Event Driven Index declined –0.67% in June (+3.21% YTD). Arbitrage and event driven managers experienced losses, as a flight to quality caused a re-pricing of risk assets. While funds have experienced losses in the last two months, several arbitrage strategies remain positive year-to-date. Credit markets were positive, led by a rally in Treasuries. Investment grade and high yield bonds posted positive performance on a total return basis due to a positive carry even as spreads widened. During the month, the spread on the Merrill Lynch High Yield Index widened from 598 basis points to 713 basis points during the month, the highest level since December 2009. The spread of investment-grade corporate yields increased 50 basis points, from 150 basis points to 200 basis points.

The Hennessee Distressed Index fell –2.30% in June (+3.87% YTD). Distressed funds suffered in June as long portfolios experienced broad based declines. Managers have consolidated core risk positions and added protection during the sell off, but remain long biased, as is typical for the strategy. While the pace of U.S. corporate defaults has slowed dramatically in 2010, managers are optimistic on the opportunity set for new distressed opportunities over the next five years. Managers report that many companies that have refinanced debt maturities have only delayed their balance sheet problems. With a daunting maturity schedule for high yield debt and leveraged loans over the next five years, managers expect both long and short opportunities to emerge.

The Hennessee Merger Arbitrage Index advanced +0.49% in June (+2.10% YTD). Despite the equity market decline and volatility, managers experienced gains as they were highly hedged and several deals approached closure. Managers are finding some attractive arbitrage opportunities in strategic acquisitions by well financed acquirers. While managers have been optimistic, we have yet to see the significant pick up of M&A activity that many expected. Most expect M&A activity to remain subdued as long as equity markets remain volatile. However, managers remain optimistic for accelerated deal activity in the future as both companies and private-equity groups are sitting on a substantial amount of dry powder, which will eventually be put to work.

The Hennessee Convertible Arbitrage Index advanced +0.42% (+1.80% YTD) in June. During the month, it seemed that the selling pressure from May eased, but there was little new buying. Secondary cheapening in convertibles and a widening of credit spreads resulted in losses. Losses were offset by declining interest rates, positive cash flows, and higher volatility. The convertible space remained largely apathetic as sovereign, economic and regulatory concerns continued to weigh on investors.

“The equity and bond market in June signaled a ‘Japan like future’ for the U.S. economy, characterized by anemic GDP growth, large deficits, and benign inflation,” commented Charles Gradante. “Collectively, most hedge fund managers see better demographics for the U.S. relative to Japan, resulting in consumer demand prospects significantly better than Japan. The real debate is over when this pent-up demand will be unleashed.”

The Hennessee Global/Macro Index fell -1.10% in June (-1.93% YTD). International equities declined as the MSCI EAFE Index fell -1.16% (-14.72% YTD) during the month. As was the case in the U.S. equity markets, concerns about a global economic slowdown and sovereign debt in Europe remained the main focus for international markets. European and emerging markets held up relatively well in June, compared to the U.S. markets; however, they are down significantly more on a year-to-date basis. Hedge funds benefited from conservative portfolios, as the Hennessee International Index fell -0.80% (-0.02% YTD).

The Hennessee Macro Index fell -1.60% for the month (-0.40% YTD). In recent months, macro managers have lowered risk and simplified portfolios. Many macro managers are positioned for the U.S. to enter a deflationary period, which would lead to lower stock prices. Managers suffered losses in a crowded short position in long term Treasuries, as prices rallied in a flight to quality. The 10-year Treasury yield tumbled from 3.31% to 2.95%, falling below 3% for the first time since April of 2009. Risk-averse investors continued to shift into precious metals, benefiting hedge funds, as a key macro theme has been long gold, which hit a record high in June. Corporate website: www.hennesseegroup.com

- 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. Little-known cryptocurrency hedge fund seeks $200m in SEC filing[more]

    From Coindesk.com: A little-known, newly established hedge fund is seeking to raise $200m to invest in cryptocurrencies, according to regulatory filings. The bid by Cryptocurrency Fund LP to raise the money was revealed in a Form D submission to the US Securities and Exchange Commission (SEC), dated

  2. FinTech - Bitcoin hedge fund director: ICOs are having a 'eureka' moment, Big data and analytics: Not just for quants anymore, Data breach of a single firm impacts systematic risk (and cost of capital) for the firm's entire sector[more]

    Bitcoin hedge fund director: ICOs are having a 'eureka' moment From Coindesk.com: The director of one of the first bitcoin hedge funds offered praise for initial coin offerings (ICOs) today, arguing in an investor note that the novel fundraising method is already showing signs of

  3. Already above average, Singapore high-networth investors add hedge funds and alternative investments[more]

    Komfie Manalo, Opalesque Asia: An above-average proportion of Singaporean HNW wealth is allocated to alternative investments - the majority of which is held in hedge funds, according to the latest research by ReportLinker. In its report entitled, Wealth in Singapore: HNW Investors 2017

  4. Launches - Crypto boom: 15 new hedge funds want in on 84,000% returns, Crypto madness is striking VCs as Union Square analyst leaves to start new fund[more]

    Crypto boom: 15 new hedge funds want in on 84,000% returns From Forbes.com: With 43 projects raising $1.2 billion in initial coin offerings since May 1, according to Nick Tomaino's The Control, and with stratospheric returns for so many ICOs -- 82,000% for Ethereum, 56,000% for IOTA, 44,

  5. FinTech - The machines are coming... Elon Musk's grim warning, Tezos' $232 million ICO may just be the beginning, A gentle introduction to Initial Coin Offerings (ICOs), Billion dollar tokens, ICOS & crazy market swings WTF is going on!?, How AI is changing the way we invest, How the tech revolution is bringing flip-flops and beanbags to Wall Street, A 'machine-learning' approach to venture capital[more]

    The machines are coming... Elon Musk's grim warning From Tenplay.com.au: Tesla chief Elon Musk has called on US Governors to take 'decisive' action to curtail "the greatest risk we face as a civilization": Artificial Intelligence, or AI. Speaking at a meeting of the National Governor Ass