July 11, 2008

Hedge Funds Do Well as Equity Markets Slide

During the second quarter, hedge fund managers performed better as they maintained well-hedged, tighter exposures

Despite equity markets selling off sharply, hedge funds fared pretty well in June, according to Hennessee Group LLC, an advisor to hedge fund investors.

The Hennessee Hedge Fund Index declined -0.64% in June (-0.85% YTD) while the S&P 500 declined -8.60% (-12.84% YTD), the Dow Jones Industrial Average declined -10.19% (-14.43% YTD), and the NASDAQ Composite Index declined -9.10% (-13.53% YTD). Bonds fell, as the Lehman Aggregate Bond Index declined --0.08% (+1.13% YTD).

"Hedge funds preserved capital as the equity markets declined sharply in June," said E. Lee Hennessee, Managing Principal of Hennessee Group, in a release. "Many managers struggled in the first quarter as they were whipsawed by huge swings in volatility. However, during the second quarter, managers performed better as they maintained well-hedged, tighter exposures."

The Hennessee Long/Short Equity Index declined -0.35% in June (-1.07% YTD) despite the equity markets selling off sharply, the company said. "Managers were able to outperform the broad market due to conservative positioning (low gross and net exposures). In addition, managers were able to profit off short positions in the financial sector, which continued to decline in June. With the broad indices flirting with official 'bear market levels' (down over -20% from highs in October 2007), managers remain extremely cautious and are hesitant to put money to work," Hennessee said.

Charles Gradante, Managing Principal of Hennessee Group, said in the release that while some managers "believed the rebound in April was a sign that markets had stabilized from the credit crisis, it is now obvious that these markets are still very vulnerable as they fall through key support levels. Most believe that the market will not turn around until there is some improvement in the housing market, energy prices and financial sector. If the Dow doesn't hold at 11,200, the next support will be at 10,600."

The Hennessee Arbitrage/Event Driven Index declined -0.07% in June (-0.04% YTD). Arbitrage/Event Driven funds finished the first half of the year basically flat, Henessee said.

Meanwhile, "The commodities boom has helped propel performance of macro managers thus far this year," said Gradante. "However, given a global economic slowdown, the run up in commodities may be long in the tooth. Macro managers are positioned to take advantage of a near term bull market correction in commodities. However, most believe the long term bull trend is still intact but with less momentum. In addition, macro mangers moved out of most emerging markets as $5 billion of mutual fund assets in those markets were liquidated in June."

Reprints Discuss this story
This is where the comments go.