Hennessee Group LLC, an adviser to hedge fund investors, announced that strong equity markets contributed to positive performance of hedge funds in July, as the Hennessee Hedge Fund Index climbed +2.35% (+3.61% YTD).
“Hedge funds, as an asset class, continue to outperform equities and bonds,” said Charles Gradante, Managing Principal of Hennessee Group LLC. “As the Fed tightens, equity stock picking and most arbitrage strategies become more fundamentally driven, which plays into the strength of hedge fund money management. Hedge fund manager’s greatest fears are overtightening by the Fed and protectionism against China.”
The Hennessee Long/Short Equity Index increased +2.91% (+3.77% YTD) in July. Hedge fund managers demonstrated their alpha by posting a strong return despite not being fully exposed to the market. However, as the broad markets rallied (to reach 4 year highs in some cases), managers gradually increased their gross exposure as they gained conviction in both their stock ideas and the market as a whole. Optimistic manager sentiment has been supported by positive manufacturing and employment data and greater than expected 2nd quarter year over year earnings.
“Equity hedge fund managers rallied with the markets as stock picking on the long and short side generated positive returns,” said E. Lee Hennessee, Managing Principal of Hennessee Group LLC. The Hennessee Arbitrage/Event Driven Index was up in June, returning +1.59% (+1.80% YTD), spurred by merger arbitrage mangers as spreads tightened, regulators approved the Sprint/Nextel deal, and there was a 50% pick up in global M&A activity versus this time last year. The convertible market continued its rebound as liquidity increased, but volatility remained low and new issuance was moderate, putting pressure on static returns to generate positive performance.
The Hennessee Global/Macro Index rallied +1.86% (+5.47% YTD) in July. Macro managers profited from trading around oil (+7% in July) and currencies, particularly the volatility caused by the sudden revaluation of the yuan. Furthermore, the yield curve steepened as Treasuries sold off and gold moved down, ending the month off -1.5%”Although money managers believe the recent revaluation of the yuan to the dollar is insignificant in real terms, most believe the yuan trend will influence all Pacific Rim currencies to revalue,” stated Mr. Gradante. “This revaluation will be bullish for the Pacific Rim equity markets and ignite consumption and investing in these markets by domestic consumers.”
The broad market indices were also positive for the month as the S&P 500 increased +3.72% (+2.87% YTD), the Dow Jones Industrial Average rose +3.56% (-1.32% YTD), and the NASDAQ Composite Index rallied +6.22% (+0.43% YTD).