Opalesque Industry Update - Hennessee Group LLC announced today that the Hennessee Hedge Fund Index gained +1.82% in July (+6.91% YTD), while the S&P 500 gained +4.95% (+18.20% YTD), the Dow Jones Industrial Average increased +3.96% (+18.28% YTD), and the NASDAQ Composite Index rose +6.56% (+20.10% YTD). Bonds were also positive on the month, as the Barclays Aggregate Bond Index gained +0.14% (-2.31% YTD).|
“Several managers were encouraged to see that $60 billion was redeemed from bond mutual funds in June, with most of it going to savings.” commented Charles Gradante, Co-Founder of Hennessee Group. “That money is building on the sidelines representing new future demand for equities.”
Equity long/short hedge funds were positive in July, as the Hennessee Long/Short Equity Index gained +2.95% (+11.22% YTD). The best performing sectors were health care (+7.09%), industrials (+5.60%), and materials (+5.51%). The underperforming sectors were telecommunication services (-0.74%), consumer staples (+3.88%) and information technology (+4.10%). The risk-on sentiment was back in play as investors reacted to increased M&A activity and positive earnings reports. Short portfolios experienced considerable losses as markets rebounded significantly in July.
“The VIX says it all” noted Charles Gradante. “It started the month around 17 and steadily declined to 12 as of July 26th.”
The Hennessee Arbitrage/Event Driven Index advanced +1.01% in July (+5.82% YTD). The Barclays Aggregate Bond Index rose +0.14% (-2.31% YTD) as interest rates increased in July. High yield also rose as the Merrill Lynch High Yield Master II Index increased +1.88% (+3.41% YTD). High yield spreads narrowed roughly 50 basis points to end the month 471 basis points over treasuries as investors’ fears over near term stimulus reduction calmed. The Hennessee Distressed Index added +1.39% in July (+8.31% YTD). Distressed portfolios were positively affected by both a narrowing of credit spreads and strong equity markets. The Hennessee Merger Arbitrage Index gained +1.66% in July (+5.23% YTD). Managers posted gains as deal spreads narrowed and M&A activity increased through activist, special situation and strategic transactions. The Hennessee Convertible Arbitrage Index returned +0.11% in July (+3.93% YTD). Convertible arbitrage managers experienced gains amid tighter credit spreads and stronger equity markets.
“The Fed came close to the tapering-cliff’s edge and backed away,” added Dean Rubino, President of Terrapin Asset Management, LLC. “And so, under the auspices of just-bad-enough economic data, the asset purchases continue and the market rally goes on.”
The Hennessee Global/Macro Index advanced +0.66% in July (1.64% YTD). The MSCI EAFE Index gained +5.24% (+7.53% YTD). The Hennessee International Index gained +0.65% (+3.86%). Emerging markets were also positive, as the MSCI Emerging Market Index rose +0.77% (-10.20% YTD), while, the Hennessee Emerging Market Index rose +1.87% (+3.42% YTD). The Hennessee Macro Index increased +0.34% for the month of July (-1.73% YTD).
“One Manager who just returned from China has widened his concerns over a credit crisis in China. The manager reported that many banks are offering ‘wealth management’ products promising high interest rates, but often without much, if any, disclosure about how the deposit will be invested. The manager also reported that people think everything is backed by the government, stating ‘as long as the Communist Party remains in power, these products are safe,’” said Charles Gradante.
Fixed income managers had mixed results in July as bond yields increased for the month with the 10-Year U.S. Treasury ending the month at 2.60%. Commodities managed strong gains in the “risk on” environment. The U.S. Dollar extended gains that started in mid June through the early portion of July, however, only to end the month -1.90% lower versus the Euro and -1.03% lower versus the Yen. Gold and silver both reversed course, gaining +7.33% and +0.89% for July, respectively. Crude oil continued higher, gaining +8.91% for the month while natural gas continued to shed its gains from earlier in the year, falling +3.18% for July.