Hennessee: Hedge Funds Up 1.43% In Feb. On Cautious Positioning

Mar 8 2011 | 5:46pm ET

Concerns about the pace of the current equities market rally and unrest in the Middle East and North Africa have hedge funds back on their heels somewhat in the early going of 2011.

The Hennessee Hedge Fund Index returned 1.43% last month, again trailing the broader markets, with the Standard & Poor's 500 Index rising a more robust 3.2%. For the first two months of the year, the Hennessee Index has returned less than half the return of the S&P500, with the former up 2.15% against the latter's 5.53%.

"Managers have underperformed in 2011 due to conservative portfolio positioning,” said Lee Hennessee, managing principal of the Hennessee Group. “While most believe that the economic recovery will continue, the market’s strong rally over the past two years has priced in a lot of positive news.  Thus, many managers are cautious and are willing to sacrifice some upside participation in order to be protected in case of a correction.”

Only one strategy outperformed the S&P500 in February, growth funds with a 3.65% return (4.28% year-to-date). And only one has done so year-to-date, private investments in public equities and private financing funds, up 5.85% through February (3.01% in February).

Other strong performers last month included event-driven funds (2.14% in Feb., 4.01% YTD), financial equities funds (2.13%, 3.09% YTD) and healthcare and biotechnology funds (2.07%, 0.74% YTD).

Three strategies lost ground on the month: short-bias (down 2.47%, down 3.77% YTD), emerging markets (down 0.88%, down 1.43% YTD) and Asia-Pacific (down 0.71%, down 0.36% YTD).

All three of Hennessee's overarching indices, long/short equity, arbitrage/event driven and global macro, were in the black in September at 1.79% (2.33% YTD), 1.52% (3.45% YTD) and 0.49% (0.08% YTD), respectively.

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