Hennessee Group has released its latest data for April of 2010. According to its press release, the Hennessee Hedge Fund Index advanced +1.30% last month, falling behind the S&P 500 (+1.48%), the Dow Jones Industrial Average (+2.64%) and the NASDAQ Composite Index (+2.64%). Managing Principle of Hennessee Group Lee Hennessee commented, “The market has experienced strong beta-driven rallies, especially in March, and it is common for hedge funds to lag. The short portfolios of hedge funds have been a major detractor from performance.”
The Hennessee Long/Short Equity Index increased +1.43% in April although long/short funds are suffering from an extremely challenging shorting environment. According to Hennessee Group’s Charles Gradante, “many hedge funds have actually generated negative alpha on their shorts (meaning that their shorts are going up more than the market).” Mr. Gradante further commented that, “funds have significant short exposure in high beta, low quality stocks, which have outperformed in this rally.” Short investments in sectors that have rallied year-to-date, including regional banks (+42% YTD) and REITs (+19% YTD) have been particularly troublesome for long/short managers.
The Hennessee Arbitrage/Event Driven Index increased +1.70% in April, mainly driven by rallies in the equity and bond markets which have translated into profits for arbitrage and event-driven funds. The
The Hennessee Distressed Index advanced +4.13% and is up +11.71% year-to-date. Distressed hedge funds continue to take advantage of the strong performance of the credit markets. Distressed managers are eagerly awaiting 2012 through 2014 when a significant number of corporate bonds mature which may be difficult to refinance. According to Mr. Gradante, “with regards to the bank debt maturity schedule, 85% of all leveraged loans still outstanding are scheduled to mature by 2014. According to J.P. Morgan, approximately $1.2 trillion of high-yield bonds and bank loans are scheduled to mature by 2015. Issuance would need to average $200 billion a year in order to satisfy refinancing needs alone. In 2009, issuance was $147 billion, setting an annual record. This should lead to significant financial distress and opportunities.”
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