Hedge Funds Add 0.36% In November, Hennessee Says

Dec 12 2012 | 11:03am ET

Hedge funds have quite a hill to climb this month if they are to get anywhere close to matching the performance of stocks this year, a prominent industry index shows.

The average hedge fund is up just 5.47% this year after a 0.36% gain last month, according to the Hennessee Hedge Fund Index. By contrast, most U.S. stock indices are in the double-digits. But while the Hennessee Group's Charles Gradante praised an "improved" stock-selection environment and sub-prime mortgage investments ("a significant profit generator in 2012" where "a lot of the easy money has been made"), it's clear that many hedge fund managers are looking towards the new year.

“Once we get past the fiscal cliff, many managers are somewhat optimistic about 2013 due to an accommodative Fed, an increase in bank lending, a continued housing recovery supported by record low mortgage rates, and lower gasoline prices, which should help the consumer.  In addition, a lower dollar would boost exports and low inflation supports real income,” Lee Hennessee, managing principal, said.  “GDP is growing at 2.7%, and many see the potential for GDP growth to be 3.0% next year.”

For now, however, most hedge funds are dealing with middling returns—or worse—for 2012. Arbitrage and event-driven funds rose 0.82% in November and are up 7.72% on the year, while global and macro funds added 0.55% on the month and 3.92% on the year and long/short equity funds inched up 0.08% in November and are up 4.84% on the year.

Among substrategies, distressed and European funds enjoyed the best November, rising 1.32%. The former are up 10.19% on the year, while the latter have returned an average of 8.55%. Other strong Novembers were seen among merger arbitrage funds (up 1.28% in Nov., 4.34% year-to-date), international funds (1.15%, 8.83% YTD) and event-driven funds (1.07%, 9.09% YTD). For the year, Latin America funds lead the way at 11.5% (0.26% in Nov.), followed by financial equities funds (10.79%, down 0.68% in Nov.), healthcare and biotechnology funds (10.28%, 0.72% in Nov.), and distressed funds.

Four strategies lost ground in November: technology funds (down 2.01% in Nov., down 3.13% YTD), short-biased funds (down 1.41%, down 14.74% YTD), financial equities funds and European funds (down 0.04%, up 1.66% YTD). Technology and short-biased funds are the only strategies in the red year-to-date.

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