The hedge funds tracked by Hennessee Group produced a positive return of 2.75% in November, bringing the 2004 year to date return to 5.98% for the Hennessee Hedge Fund Index. The broad market indices were also positive for the month, as the S&P 500 DRI Index climbed +4.47% (+7.66% YTD), the Dow Jones Industrial Average rose +4.00% (-0.24% YTD), and the NASDAQ Composite Index gained +6.17% (+4.68% YTD).
“Our research dialogue with hedge fund managers is confirming the observation Hennessee Group made to its clients earlier this year. Then and now, we can continue to be concerned about hedge funds who are writing and issuing credit default swaps (CDS), without owning the underlying bond, for the sole purpose of increasing performance,” says Charles Gradante, Managing Principal of Hennessee Group LLC. “If we have a credit event, several hedge funds may face systemic portfolio problems. We are not only seeing this trade among credit arbitrage managers, but also among equity hedge fund managers who recognize the risk of naked put writing, but are confident in the credit risk.”