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December 19, 2005 at 07:00 PM
NEW YORK (HedgeWorld.com)–For those who spent their November days worrying about hedge funds’ poor performance in October and their nights fretting over hedge funds’ return correlation with equity markets, news about November’s positive returns for hedge funds in the Hennessee Hedge Fund Index may ease the days, but will probably generate still more sleepless nights.
The index overall was up 1.42% last month, but that performance was driven largely by broad market gains, said E. Lee Hennessee, managing principal at the Hennessee Group LLC, which compiles the index. The Standard & Poor’s 500 stock index rose 3.78% in November, while the Dow Jones Industrial Average was up 3.5% and the Nasdaq Composite index returned 5.31%. Bonds also saw good performance, with the Lehman Brothers Corporate Bond Index up 0.44%.
“Managers were able to participate in the market rally, but were hurt by their short portfolios as the rising tide floated all ships, not just the good ones,” Ms. Hennessee said in a statement.
The S&P Hedge Fund Index reported an overall November return of 0.07%.
Hennessee’s long/short equity index rose 1.3% last month after falling 1.7% in October. Why? According to Hennessee, managers increased their net exposure in October to take advantage of markets that rallied on the hope that the U.S. Federal Reserve would stop raising interest rates.
Short-biased managers got walloped in November, courtesy of the rallying equity markets. Short sellers in the Hennessee index lost 4.36%. For the year, the long/short equity index is up 4.99%.
The Hennessee arbitrage/event driven index was up 1% in November, a complete reversal from October’s negative 0.76% return. Convertible arbitrage managers continued to chip away at the wall of negative returns they built early in the year, earning 0.16% in November. For the year they are down 3.04%. Concerns about year-end redemptions in convertible arbitrage so far have proved unfounded, according to Hennessee. And issuance of convertible securities rose relative to earlier months.
