Hedge Funds Post Strong Gains in First Half of 2009

Jul 8 2009 | 10:10am ET

The Hennessee Hedge Fund Index advanced 0.64% in June, bringing its year-to-date gains  to 11.74%. By comparison the Standard & Poor’s 500 Index increased 0.02% (1.78% year-to-date), the Dow Jones Industrial Average decreased 0.63% ( down 3.75% YTD), while the NASDAQ Composite Index advanced 3.10% (16.36% YTD). 

“Most hedge fund managers are not buying into the 'Green Shoots',” said Charles Gradante, co-founder of Hennessee Group. “While markets rallied sharply in April and May, most managers remained conservative.  I think we have reached an inflection point as momentum seems to have faded. We should see a return to stock picking based on fundamentals, which are rather negative.  In addition, the technicals are also bad, leading us to believe in a summer correction.”

The Hennessee Long/Short Equity Index gained 1.10% in June (10.95% YTD) as equity markets lost momentum last month after experiencing strong gains during the first two months of the quarter. The Hennessee Arbitrage/Event Driven Index gained 1.14% in June (13.76% YTD) on the strength of credit markets’ continued strong positive.

Hennessee’s Distressed Index also advanced 4.45% in June (17.16% YTD).  The U.S. high yield default rate increased to 9.5%, up from 2.4% a year ago, and is expected to end the year in a range of 15% to 18%, according to the firm. The Hennessee Convertible Arbitrage Index gained 0.21% (21.48% YTD). 

Also, the Hennessee Merger Arbitrage Index posted a 1.21% gain last month (5.33% YTD) as managers found opportunities in strategic acquisition activity as well as distressed merger and acquisition activity. And the Hennessee Global/Macro Index declined 0.46% in June (10.77% YTD).

“Hedge funds have outperformed equity benchmarks by a 10% margin in the first half of 2009,” said Lee Hennessee, managing principal of Hennessee Group. “The outperformance is largely due to the ability of hedge funds to profit from their short portfolios, as we saw in January and February. While hedge funds are routinely publicized as high risk vehicles, the reality of the situation is that the average hedge fund has demonstrated significantly less volatility than traditional asset classes for the 22 years we have been advising investors.”

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