Hedge funds were down 3.2 per cent in July, according to the Hennessee Hedge Fund Advisory Group, which advises individuals and institutions on over $1 billion in assets. The figure covers funds in the Hennessee Hedge Fund Index.
Though hedge funds were down for the month, their performance still beat US equities as the broad market S&P 500 Index fell -7.80%, the Dow Jones Industrial Average fell off -5.48%, and the Nasdaq Composite Index tumbled -9.22%. Year-to-date, hedge funds are down -4.73%, far better than the overall dismal performance of the US equity markets, as the S&P 500 is down -19.96%, the Dow Jones Industrial Average is down -12.81%, and the Nasdaq is down a staggering -31.89%. In addition, Lipper Mutual Funds are down -17.68% year-to-date.
Marking the fourth consecutive month as the top performer, the Short Biased Index was up +2.63%, followed by the Market Neutral Index, up +0.66%, and the Fixed Income Index, down -0.55%. In particular, the Short Biased Index has had only one down month during 2002 and has the highest year-to-date return of +14.01%. Conversely, the worst performing hedge fund indices during July were the Latin America Index (the third consecutive month as the worst performing Index), down
-11.67%, High Yield Index, down -6.77%, and the Financial Equities Index, down -5.44%.
“July marked another difficult month for hedge funds,” said Charles Gradante, Managing Principle of Hennessee Group LLC. “As markets sold off on weak economic data and the VIX reached levels not seen since the 1987 crash, the only managers able to stay in positive territory were short-biased.”
Mr. Gradante also stated “the fact that hedge funds are down for the month and the year refutes the common notion that the bad boys of Wall Street are at the heart of this bear market.”
Latin America continued to suffer as the MSCI EMF Latin America fell -15.58%. The extra economic burden of Uruguay’s collapse of their banking system, Brazil’s inability to make debt- payments (in addition to Argentina’s troubles), and the hesitancy of foreigners to commit capital under the possibility of a socialist government coming to power in Brazil harmed Latin American managers. Meanwhile, SEC probes into large banks regarding their relationships with WorldCom and Enron pushed the Financial Equities managers down for the month. The high yield environment did not fare much better. With an increase in the deterioration of non-investment grade credits and default rates hitting record highs, high yield managers were battered.