Hedge funds tracked by the Hennessee Hedge Fund Index produced a positive return of +2.14% in January.
The broad market indices were up in January, with the S&P 500 DRI Index gaining +1.84% (+1.84% YTD) and the Dow Jones Industrial Average increasing +0.33% (+0.33% YTD). The Nasdaq Composite Index climbed +3.13% (+3.13% YTD).
“Long/short equity hedge funds beat the S&P 500 in January with only average net long exposures at 40%,” says Charles Gradante, managing principal. “Key to their success in January was their protection of the downside as the market sold off during the last week in January.”
The Hennessee Regulation D Index was the top-performing index in January with a return of +4.51% (+4.51% YTD), as an improving economy continues to be an excellent backdrop for this strategy, especially when the need for capital increases and banks are reluctant to lend.
The second best performer for the month was the Hennessee Healthcare and Biotech Index, with a return of +4.50% (+4.50% YTD). The biotech index was up 5%, boosted by JP Morgans mid- month conference where general consensus was very positive. Additionally, the FDA seems motivated to accelerate approval of promising drugs.
In third position was the Hennessee Europe Index, posting a return of +3.63% (+3.63%YTD). Fundamentals are not as good in Europe as in the US but money flows into Europe are excellent, amounting to $172 billion of new capital. The Hennessee Short Biased Index was the worst performing strategy in January, posting a loss of -0.69% (-0.69% YTD), as the strong broad market gains once again made it very difficult for dedicated short sellers.
The Hennessee Fixed Income Index was the second worst performing? strategy, with an increase of +0.68% (+0.68% YTD), as there was a sell-off in bonds across the board.
The third worst performer was the Hennessee Merger Arbitrage Index, posting a return of +0.90% (+0.90% YTD). Although the performance was relatively strong for merger arbitrage, especially given the current opportunities, it was weak relative to the other sub-strategies, who put in a strong month.
“We can now add a new concern about the economy other than poor job creation, and that is a disconcerting decline in money growth,” says Gradante. “The decline in US money growth is very bearish for the equity market and may be signaling problems in financial intermediation.”