Hedge Funds Beat S&P 500 In First Quarter

Apr 14 2014 | 3:11am ET

The Hennessee Hedge Fund Index lost 0.48% in March, however year-to-date the index is up 1.5%, beating the S&P 500 which gained 1.3% over the same period. Meanwhile, the Dow Jones Industrial Average rose +0.83% in March (-0.72% YTD), and the NASDAQ Composite Index declined 2.53% during the month (+0.54% YTD).  Bonds were negative on the month, as the Barclays Aggregate Bond Index decreased 0.17% (+1.84% YTD).

“Momentum names in the NASDAQ were hit hard in March, reducing hedge fund performance as the reduction of fed bond purchases increased concerns that the 10-Year was heading above 3%,” said Charles Gradante, co-founder of Hennessee Group.

According to the index, the top three strategies for the month of March were Latin America, which gained 3.51%, high yield, which rose 1.36%, and convertible arbitrage, which was up 1.15%.

The worst performing strategies for the month were technology, which lost 2.74%, international, which was down 2.03%, and macro, which dropped 1.44%.

"Risk assets were mostly higher even as volatility, measured by the VIX, increased from February’s month end value of 14 to an intra-month high over 17.5.” added Gradante.  "Hedge fund managers had a difficult time weathering the back and forth direction of the market during March.”

Equity long/short hedge funds were negative in March, as the Hennessee Long/Short Equity Index dipped 0.3% (+2.59% YTD).  The best performing sectors were telecommunication services (4.67%), utilities (3.09%), and financials (3.08%), while underperforming sectors were consumer discretionary (-2.93%), health care (-1.37%) and information technology (+0.21%).  The utilities sector is now the best performing sector for the year having gained 9.02% YTD through March, while consumer discretionary is bringing up the rear, having lost 3.16% YTD through March.

“Managers are not changing their net long bias as there is no competition for equities and stock buybacks continue reducing supply,” said Gradante. “However, hedge fund managers reduced exposures to high beta stocks in March.”

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