Hedge Funds Have Strong Showing In September

Oct 11 2010 | 10:34am ET

Last month proved a good one for the average hedge fund, according to the Hennessee Group.

The Hennessee Hedge Fund Index advanced 3.5% in September (4.60% YTD). During the same period, the S&P 500 advanced 8.76% (2.34% YTD), the Dow Jones Industrial Average increased 7.72% (3.45% YTD), and the NASDAQ Composite Index climbed 12.04% (4.38% YTD).  Bonds also advanced, as the Barclays Aggregate Bond Index increased 0.11% (7.94% YTD).

“Hedge funds had their best month since May of 2009 and continue to outperform the broad market year to date,” said Charles Gradante, co-founder of the Hennessee Group. “While managers are concerned about elevated macro economic risks, we are beginning to see growing optimism about the equity markets in the short term.”

Lee Hennessee, managing principal of the Hennessee Group, said it has been a challenging year for hedge funds, but they are proving their mettle. "They have struggled to generate alpha in an environment of high correlation and high volatility.  That said, hedge funds are still outperforming equity markets year to date,” said Hennessee. “In addition, since September 2008, when short selling was temporarily halted and the credit crisis really took hold, hedge funds have generated a positive 9.3% return, while the S&P 500 is still down minus 11%."

The Hennessee Long/Short Equity Index advanced 3.91% in September (3.71% YTD).  All ten sectors experienced gains during the month led higher by technology, which continues to benefit from favorable fundamentals, increasing M&A activity and higher buybacks.  Hedge funds participated in the market rally, but lagged on a relative basis due to reduced exposures and hedges. Short selling was particularly difficult for hedge funds as 97% of the S&P 500 constituents experienced gains during the month. Short biased managers suffered from the equity rally, losing -7.02% during the month and are now down -7.37% for the year. 

Arbitrage and event driven managers were positive in September, as the Hennessee Arbitrage/Event Driven Index advanced 2.66% (7.15% YTD). 

The Hennessee Distressed Index increased 2.38% in September (7.13% YTD).  Distressed managers experienced gains as equity markets rallied sharply and credit spreads tightened. 

The Hennessee Merger Arbitrage Index advanced 0.41% in September (3.83% YTD).

The Hennessee Convertible Arbitrage Index advanced 2.83% (7.27% YTD) in September.  
                                                                                                              
The Hennessee Global/Macro Index advanced 3.75% in September (3.78% YTD). 

The Hennessee International Index gained 4.13% for the month of September (4.61% YTD) while the Hennessee Emerging Markets Index gained 5.20% (7.44% YTD). 

The Hennessee Macro Index advanced 2.41% for the month (2.26% YTD) as financial market volatility declined and trending behavior persisted.  


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Editor's Note