Hennessee Group: Hedge Funds Underperform in June

Jul 21 2016 | 10:30pm ET

June data from hedge fund industry observer Hennessee Group showed the investment class underperformed broader market measures last month, in contrast to other benchmark measures tracking hedge fund performance that showed gains for the period. 

The Hennessee Hedge Fund Index fell a minimal -0.02% in June while the S&P 500 gained +0.09%, the company noted in a statement. The year-to-date tally for the index is now -0.30%. 

In comparison, HFR’s HFRI Fund Weighted Composite Index rose 0.83% in June, Eurekahedge’s Hedge Fund Index gained 0.64%, and SS&C GlobeOp’s Hedge Fund Performance Index dipped 0.54% - illustrating the difficulty inherent in measuring returns across the entire hedge fund industry.  

“After the strong Brexit plunge in June, stocks rebounded at month-end,” noted Charles Gradante, co-founder of Hennessee Group LLC.  “Managers fell into two large groups: those who capitulated in June and covered shorts, resulting in increased exposure; and those who added to shorts positions believing a poor Q2 earnings season is ahead. 

“Managers are divided in opinion on the most ‘hated bull market in a generation’,” Grandante added.

The top three strategies for the month were Latin America (+8.47%), International (+3.20%) and Macro (+1.94%), according to Hennessee’s report.  The bottom three strategies for the month were Financial Equities (-4.52%), Europe (-3.24%) and Healthcare and Biotech (-2.18%).

Equity long/short hedge funds were negative for the month, as the Hennessee Long/Short Equity Index lost -1.39% and is now down -3.28% for the year to date.  The best performing sectors were telecommunication services (+9.32%), utilities (+7.47%), and consumer staples (+4.81%), while underperforming sectors were financials (-3.43%), information technology (-2.80%) and consumer discretionary (-1.33%). 

The Hennessee Arbitrage/Event Driven Index increased +0.11% for the month (+1.49% YTD).  The Barclays Aggregate Bond Index gained +1.80% (+5.32% YTD) as interest rates were lower for the month.  High yield spreads were higher, increasing 24 basis points to end the month 621 basis points over Treasuries.  The Hennessee Distressed Index was positive for the month by +0.54% (+3.51% YTD), while the Hennessee Merger Arbitrage Index gained +0.08%. The Hennessee Convertible Arbitrage Index gained +0.41% and is now up +3.70% for the year so far.

The Hennessee Global/Macro Index rose +1.65% for the month, bringing its 2016 performance to +2.24% YTD.  Hedge fund managers significantly underperformed the emerging markets benchmark, as the Hennessee Emerging Market Index fell -0.11% in June compared to +3.30% in the MSCI Emerging Market Index.

The Hennessee Macro Index increased +1.94% for the month and is ahead +4.48% for the year.  Fixed income managers were positive for the month as bond yields were broadly lower.  Commodities were mixed for the month as WTI oil lost -1.69% and natural gas gained +38.68%.

Hennessee indices have been used to benchmark the hedge fund industry since 1987. They are an equally weighted average of a diversified group of hedge funds consisting of 23 different investment styles.

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