Hedge Funds Underperform In July, Lose -0.02%

Guest post courtesy of the Hennessee Group.

August 13, 2015 – New York, NY – Hennessee Group LLC announced today that the Hennessee Hedge Fund Index lost -0.02% in July (+2.94% YTD), while the S&P 500 gained +1.97% (+2.18% YTD), the Dow Jones Industrial Average rose +0.40% (-0.75% YTD), and the NASDAQ Composite Index jumped +2.84% (+8.28% YTD). Bonds were also positive on the month, as the Barclays Aggregate Bond Index increased +0.70% (+0.60% YTD).
“During July hedge fund managers were in ‘risk off’ mode as Q2 earnings came in with some bad news. Of the 392 S&P 500 companies that reported earnings, only 13% beat earnings, 80% met and 7% missed. Only 49% beat analysts revenue estimates but more damaging to sentiment was that 80% guided down on earnings for 2015.” commented Charles Gradante, Co-Founder of Hennessee Group LLC.

The top three strategies for the month were Healthcare and Biotech (+2.50%), International (+1.59%) and Growth (+1.19%). The bottom three strategies for the month were Latin America (-4.74%), Opportunistic (-4.12%) and Asia-Pacific (-3.54%).

The VIX started off the month up near 16, and quickly rose nearly 20% to above 20, as fears over a Greek debt deal negotiations, a sell-off of Chinese equities and the increasing likelihood of a Puerto Rican default hung heavy on the markets. As markets settled and moved higher for the month, the VIX quickly retracted and settled near 12, a decrease of nearly 40%.
“Despite generally supportive economic data (GDP growth accelerated in Q2), U.S. equity markets came close but could not set new highs for the third time this year while technicals (advance-decline line) continued to deteriorate.” highlighted Charles Gradante. “The sharp sell-off in China’s equity markets (with less than ideal transparency), coupled with a 19% decline in oil created a consensus among many managers that continued global monetary stimulus would be unabated. Many managers have concluded that their general uneasy feeling that China’s economic GDP forecast of 7% is grossly overstated is warranted. Compounding this is the issue that the pending fed rate hike, in the midst of a global currency devaluation, will cause the dollar to move higher, thus creating havoc with dollar loans made by U.S. banks to foreign companies, further declines in hard and soft commodities and increased economic woes in emerging and developing markets.”

Equity long/short hedge funds were positive for the month, as the Hennessee Long/Short Equity Index gained 0.33% (+4.52%). The best performing sectors were utilities (+6.01%), consumer staples (+5.30%), and consumer discretionary (+4.71%), while underperforming sectors were energy (-7.81%), materials (-5.03%) and telecommunication services (-1.14%). The healthcare sector is the best performing sector for the year having gained +11.71% YTD through July, while energy is bringing up the rear, having lost -13.39% YTD over the same time period.

The Hennessee Arbitrage/Event Driven Index decreased -0.08% for the month (+1.48% YTD). The Barclays Aggregate Bond Index gained -0.70% (+0.60 % YTD) as interest rates were lower for the month. High yield decreased as the Merrill Lynch High Yield Master II Index lost -0.62% for the month (+1.86% YTD). High yield spreads were higher for the month, increasing 36 basis point to end the month 536 basis points over treasuries. The Hennessee Distressed Index was negative for the month by -0.67% (-2.95% YTD). ‎The Hennessee Merger Arbitrage Index dropped -0.10% for the month (+3.14% YTD). The Hennessee Convertible Arbitrage Index was also negative for the month, losing -0.15% (+2.61% YTD).

“Macro managers do not have markets with discernable trends having favorable asymmetric risk-reward profiles.” stated Charles Gradante. “Emerging market currencies and stocks were hit hard as copper, considered a bellwether for global economic activity, declined an unexpected 9% with gold following at a 7% decline in July, both hitting multi-year lows. The sell-off in agricultural and industrial commodities hit all Latin American currencies and Asian emerging market exporters.”

The Hennessee Global/Macro Index lost -0.38% for the month (+2.20% YTD). The MSCI ACWI Index gained 0.77% (+2.32% YTD) and the MSCI EAFE Index gained 2.02% (+5.91% YTD). The Hennessee International Index gained +1.59% for the month (+5.75%). The MSCI Emerging Market Index lost -7.26% (-5.71% YTD), while hedge fund managers significantly outperformed the index, as the Hennessee Emerging Market Index gained +0.44% (+2.74% YTD).

The Hennessee Macro Index increased +0.29% for the month (-0.88% YTD).
Fixed income managers were positive in July as bond yields were lower for the month with the 10-Year U.S. Treasury ending the month at 2.20%, down 15 basis point from 2.35% in June. Commodities were mostly lower in July as WTI oil plummeted -20.80% and natural gas was negative, ending the month with a loss of -1.43%.

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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.

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Hedge Funds Underperform In July, Lose -0.02%

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