Hedge funds advanced ahead of the broad equity markets in January, rising 3.51% for the month, reports hedge fund advisor Hennessee Group, which uses its own index to track the products.
“Hedge fund investors did well in January, especially those that had allocations to international, growth, and emerging markets strategies,” said E. Lee Hennessee, managing principal of Hennessee Group LLC.
The broad equity market indices were also positive as the S&P 500 increased +2.65% (+2.65% YTD), the Dow Jones Industrial Average was up +1.38% (+1.38% YTD), and the NASDAQ Composite Index rose +4.56% (+4.56% YTD).
The bond markets were down in January, as represented by the Lehman Brothers Intermediate Government Corporate Bond Index, which decreased -0.02% (-0.02% YTD).
The Hennessee Long/Short Equity Index increased +3.80% (+3.80% YTD) in January. Managers entered January with an average long bias, but larger gross exposures, and took advantage of the additional volatility in the market, the advisory group suggests.
Hennessee found that although international managers also continued to profit, some managers expressed concern over rising valuations of companies targeted by LBOs, which would otherwise be strong short candidates.
“The rise in volatility in both equity and fixed income markets was a welcomed surprise to most managers in arbitrage strategies and long/short equity,” said Charles Gradante, managing principal of Hennessee Group LLC. “Low volatility throughout 2005 was a major factor in tempering returns.”
The Hennessee Arbitrage/Event Driven Index was up in January, returning +2.66% (+2.66% YTD). Convertible arbitrage saw the return of volatility, strong credits, and moderate new issuance.
Merger arbitrage also saw a strong month as several new deals of all sorts (hostile, LBO, mergers, competitive bids, etc.) were announced, the most notable being Boston Scientific, Arcelor/Mittal, and Albertsons.