Hedge Fund Indices Paint Prettier Picture, Still Trail S&P

Nov 9 2006 | 12:58pm ET

Yet another pair of hedge fund indices show that, in spite of their best showing in months, hedge funds are still getting trounced by the broader markets in 2006.

The HedgeFund.net Hedge Fund Aggregate Average rose 1.74% last month, and is now up 8.34% on the year, while the Hennessee Hedge Fund Index rose 1.63% in October to hit 8.14% year-to-date. That’s in line with several other hedge fund indices that have released results over the past several days. And just like the other indices, they both trail the Standard & Poor’s 500 Index, up 3.15% in October and 10.39% YTD.

“The positive equity markets were a wind at the back of most hedge funds in October,” said Hennessee Group managing principal E. Lee Hennessee.

That was certainly the case, predictably, for long-biased funds, HFN’s long-only average actually topped the S&P with a 3.94% return in October (12.23% YTD), while it’s long/short equity average rose 2.21% (8.32%). Another pair of long-biased strategies tracked by HFN, healthcare and technology, also had big months, up 3.76% (13.59% YTD) and 3.74% (11.12% YTD), respectively. Hennessee’s long/short subindex was somewhat less successful, rising only 1.78% last month (8.42% YTD).

“A flurry of private equity leveraged buyout deals at top prices have bid up stocks, causing equity managers to increase exposures during the month,” Hennessee’s Charles Gradante said. “While managers are gravitating to a soft economic landing with low inflation, they also believe that the probability of a less benign outcome is not negligible.”

Other top performers, according to HFN, were energy, which has rebounded somewhat from the natural gas price-spike that sank Amaranth Advisors last month. Its Energy Sector Average has the highest return in October at 5.27%, pushing it to 11.31% YTD, and turning a potentially disappointing year into a potentially good one. Emerging markets also had a good month, up 2.29% (14.34% YTD) in the HFN index, while the Hennessee International Index rose 2.68% (8.61% YTD).

Hennessee’s Arbitrage/Event-Driven Index rode an improved credit outlook to return 1.26% last month (9.15% YTD). The Hennessee Distressed Index was up 1.45% (11.27%).

Convertible arbitrage rose 0.45% (9.46% YTD) and merger arbitrage 0.8% (9.87% YTD), according to Hennesse, as HFN’s Relative Value Aggregate Average rose 1.04% (8.82% YTD) and its Convertible Arbitrage Average 0.4% (9.84% YTD).

The Hennessee Global/Macro Index rose 1.63% in October (5.47% YTD), buoyed by macro funds’ first positive month in months—up 0.77% (0.59% YTD).

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Editor's Note

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    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…