Guest post courtesy of the Hennessee Group.
Hedge Funds Outperform in April
May 19, 2015 – New York, NY – Hennessee Group LLC announced today that the Hennessee Hedge Fund Index gained +1.03% in April (+3.71% YTD), while the S&P 500 gained 0.85% (+1.29% YTD), the Dow Jones Industrial Average rose gained 0.36% (+0.10% YTD), and the NASDAQ Composite Index rose 0.83% (+4.34% YTD). Bonds were negative on the month, as the Barclays Aggregate Bond Index decreased 0.36% (+1.24% YTD).
“For the second month in a row, hedge funds beat the broad equity averages as the market in March and April appear to be ‘normalizing’ as stock picking on fundamentals played a greater role in performance than the market’s momentum.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “With 89% of Q1 earnings in, 67% beat while 10% met and a disappointing 23% missed. Several managers commented that 5% to 7% of earnings growth is not enough to support the multiples in the market and with or without a Fed rate hike, these managers are reducing beta exposure and increasing cash to reinvest on any correction. Most feel the bull market is intact until the freshman year of the next presidency, as the end of bull markets are characterized by an inverted yield curve, reduction in available credit and a collapse in euphoria or excessive leverage. Of these scenarios, excessive leverage is being monitored closely by hedge fund managers.”
The top three strategies for the month were Asia-Pacific (+6.70%), Latin America (+5.59%) and Emerging Markets (+2.28%). The bottom three strategies for the month were Macro (-1.29%), Market Neutral (-0.66%) and Healthcare and Biotech (-0.66%).
“However, our main concern continues to be the speed with which the Euro, Yen and oil have declined without a black swan ‘cause and effect event’. Other key concerns are the ratio of public and private debt to GDP in the U.S., Europe, Japan and Great Britain without specific concern that the reforms will not work and ‘real’ unemployment will not decline until the drain of excessive debt burdens are addressed.” highlighted Charles Gradante.
During April the VIX remained relatively subdued, albeit for a relatively small scare near the end of the month and markets sold off. The VIX started off rising above 16.5 in the first few trading days of April, only to make its way lower to well under 12.5 near the second half of the month. Market fear kicked in during the last two weeks as the VIX rose sharply above 16, only the quickly retreat back below 13.
Equity long/short hedge funds were positive for the month, as the Hennessee Long/Short Equity Index gained +0.99% (+3.34% YTD). The best performing sectors were energy (+6.56%), telecommunication services (+4.68%), and materials (+3.07%), while underperforming sectors were healthcare (-1.41%), consumer staples (-0.96%) and utilities (-0.48%). The telecommunication services sector is the best performing sector for the year having gained +4.95% YTD through April, while utilities is bringing up the rear, having lost -6.48% YTD over the same time period.
“China has cut its rates for the third time in six months, adding to the fear factor that major global economies are in worse shape than pundits believe.” reported Charles Gradante. “Of prominent concern are the currency wars coupled with slower GDP growth among the two largest economies (U.S. and China) while asset bubbles in stocks, real estate, and bonds loom over these respective economies. To indicate how tenuous the situation in China is, a manager opined that the Chinese domestic market is in a feeding frenzy, reporting that the Shanghai market has surged 190% while growth has slowed to a six year low at 7%. Further pointing out that 45% of stocks are selling at a PE greater than one-hundred. Anything can prick this bubble, creating the need for cash in China resulting in aftershock affects in the U.S. bond market.”
The Hennessee Arbitrage/Event Driven Index increased +0.66% for the month (+2.28% YTD). The Barclays Aggregate Bond Index lost 0.36% (+1.24% YTD) as interest rates were higher for the month. High yield decreased as the Merrill Lynch High Yield Master II Index rose 1.20% for the month (+3.77% YTD). High yield spreads were lower for the month, decreasing 23 basis points to end the month 459 basis points over treasuries. The Hennessee Distressed Index was slightly positive for the month by +0.09% (-1.20% YTD). The Hennessee Merger Arbitrage Index gained +0.74% for the month (3.50% YTD). The Hennessee Convertible Arbitrage Index was also positive for the month, gaining +1.60% (+2.57% YTD).
“Macro managers are having their best start in years but not without some pain in overcrowded trades in long dollar, long German and long biotech.” stated Charles Gradante. “The dollar index fell -4% in the last week of April causing the Euro to rally and German equities to decline 4%. One manager commented that ‘the easy money in short currencies and short oil has been made. We have had a good run and it’s time to trim those trades and reduce related leverage. In fact, we made some money covering our short oil position in March and going long oil in April. We are neutral on oil in May looking for the next leg up or down.”
The Hennessee Global/Macro Index gained +0.33% in March (+3.64% YTD). The MSCI ACWI Index lost -1.78% (+1.83% YTD) and the MSCI EAFE Index fell -1.96% (+4.19% YTD). The Hennessee International Index gained +0.65% for the month (+4.40%). The MSCI Emerging Market Index lost -1.59% (+1.91% YTD), while hedge fund manages outperformed the index, as the Hennessee Emerging Market Index lost -0.14% (+1.62% YTD).
The Hennessee Macro Index increased +1.36% for the month (+5.59% YTD). Fixed income managers were negative in April as bond yields were higher for the month with the 10-Year U.S. Treasury ending the month at 2.05%, up 10 basis point from 1.95% in March. Commodities were mixed in April as WTI oil gained +24.94% and European Brent Blend Crude gained +19.02%. Natural gas was negative in March, ending the month with a loss of -3.03%.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are generated for the use by clients. Calculated from performance data obtained from publically available information, internally developed data and other third party sources believed to be reliable. The Hennessee Hedge Fund Index is an equally-weighted average of the funds in the Hennessee Hedge Fund Index.
Hedge Funds Gain +2.30% in February
Hedge Funds Gain +2.46% in February
Hedge Funds Gain +0.39% in March
Hedge Funds Gain +0.30% in January
Hedge Funds Lose -0.18% in January
Hedge Funds Lose -0.48% in March
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