Hennessee Group says the hedge funds inits index advanced ahead of the broad equity markets in April.
The Hennessee Hedge Fund Index rose +1.53% (+7.44% YTD). The broad equity market indices were mixed as the S&P 500 increased +1.34% (+5.61% YTD), the Dow Jones Industrial Average was up +2.32% (+6.06% YTD), and the NASDAQ Composite Index was down -0.74% (+5.31% YTD). The bond markets were up slightly in April, as represented by the Lehman Brothers Intermediate Government Corporate Bond Index, which increased +0.05% (-0.34% YTD).
“Hedge funds continue to outperform the S&P 500 index, with emerging markets, Asia-Pacific, and Europe leading the way,” says E. Lee Hennessee, Managing Principal of Hennessee Group LLC.
The Hennessee Long/Short Equity Index increased +1.01% (+7.47% YTD) in April. The Dow continued its March rally through April and is fast approaching an all-time high, however the NASDAQ declined for the month on negative news from Microsoft. Several hedge fund managers are still optimistic on large cap names, due to their better valuations and higher dividends, but some managers have decreased exposures in advance of the coming summer market doldrums. Most gains were made on the long side of the portfolio in April as merger and acquisition activity has hurt some hedge fund manager’s short positions.
“Hedge funds are cautiously optimistic as the global economy is still more disinflationary than inflationary,” adds Charles Gradante, Managing Principal of Hennessee Group LLC. “The Fed’s monetary policy is the key focus as many managers fear the Fed may overshoot.”
The Hennessee Arbitrage/Event Driven Index was up in April, returning +1.70% (+6.48% YTD). Convertible arbitrage hedge fund managers had a good month, up +0.82% (+5.97% YTD). New issuance was strong, however, redemptions still outpace issuance for the year. In addition, credit spreads were slightly tighter and the 10 year Treasury note rose to 5.06%. Merger arbitrage advanced +0.44% (+5.56% YTD) in April. Deal flow continues to be strong, especially in Europe. Typical merger spreads remain tight, however, there is money to be made in competitive and dynamic deals. Distressed investing hedge fund managers had a solid month, up +2.58% (+7.41% YTD), as credit spreads tightened.
The Hennessee Global/Macro Index increased +2.60% (+8.68% YTD) in April. Gold continued its upward march, reaching 25 year highs, mainly due to the flight from paper to hard assets in the face of growing inflation fears. In addition, oil speculators and refiners helped to push up oil to record levels as supply threats continued to mount. The dollar fell on a weak jobs report and a burgeoning current account deficit, worsened by the strong chance of rising interest rates in Europe (while U.S. rates potentially pause). In an effort to cool its overheated economy, China increased its interest rates, while populist leaders in South America, particularly Bolivia, spooked investors with their nationalization programs.
“Many macro managers remain bullish on emerging markets, bearish on the dollar, and neutral on commodities as the recent rise in prices is believed to be more speculative than supply/demand,” says Gradante.