Hennessee Group says hedge funds in its index advanced ahead of the broad equity markets in March. The Hennessee Hedge Fund Index rose +1.64% (+5.76% YTD).
The broad equity market indices all advanced as the S&P 500 increased +1.25% (+4.21% YTD), the Dow Jones Industrial Average was up +1.05% (+3.65% YTD), and the NASDAQ Composite Index was up +2.56% (+6.10% YTD). The bond markets were down slightly in March, as represented by the Lehman Brothers Intermediate Government Corporate Bond Index, which decreased -0.44% (-0.39% YTD).
“Hedge funds continue to outperform the S&P 500 index, with technology, Asia-Pacific, and Europe leading the way,” says E. Lee Hennessee, Managing Principal of Hennessee Group LLC.
The Hennessee Long/Short Equity Index increased +1.94% (+6.29% YTD) in March. The broad equity markets reached multi-year highs during the month as investors rotated out of bonds into equities. Strong momentum in small cap stocks benefited hedge fund managers, who were able to outperform the market indices due to quality stock selection. Most managers continue to generate gains on the long side while short positions continue to be a drag on performance. Sector strength was broad based with managers finding opportunities in technology, materials, industrials, energy, and telecommunication services.
“Most equity and arbitrage managers remain upbeat on the outlook for 2006,” adds Charles Gradante, Managing Principal of Hennessee Group LLC. “Kansas City Fed President Thomas Hoenig hinted that Fed rates are very close to where they need to be.”
The Hennessee Arbitrage/Event Driven Index was up in February, returning +1.22% (+4.54% YTD). Convertible arbitrage hedge fund managers had a solid month, up +1.00%. While volatility declined during the month, new issuance has been modestly strong, with $11.5 billion of convertibles issued in the first quarter versus $6.8 billion in the first quarter of 2005. Merger arbitrage advanced +0.90% in March (+4.60% YTD). Worldwide merger and acquisition deal flow was strong in the first quarter, with activity up 37% to $923 billion from $675 billion in the first quarter of 2005. European deal flow has been especially strong, with activity in the first quarter increasing by 103% year over year.
The Hennessee Global/Macro Index increased +1.39% (+6.11% YTD) in March. Managers continue to generate profits in gold as the precious metal rose from $561 to $581 per troy ounce. Oil prices increased to $66.63 per barrel over supply concerns in Nigeria, and as investors rotated money into commodities.
“While the U.S. Dollar sold off against the Euro, and strengthened slightly against the Yen in March, many believe the dollar is likely to weaken over trepidation on the large current accounts and the speculation that the Middle East will diversify their dollar reserves in favor of the Euro and Yen,” says Gradante.