The Hennessee Hedge Fund Index, an equally-weighted average of over 1,000 funds, was down -0.49% during August, while the S&P 500 dropped -4.74%, the Dow was down -4.31%, and the NASDAQ fell -6.24%. Hennessee’s co-founder Charles Gradante commented, “It was encouraging to see that 43% of hedge funds reporting were able to generate positive performance in August as markets started to respond more to fundamentals.” However, Hennessee’s Managing Principal Lee Hennessee added that “given the skittishness of the markets and potential for extreme volatility, managers remain cautious and well hedged.”
Hennessee’s Long/Short Equity Index fell -0.99% overall last month, but with extremely variable sector-specific performance data. Fears of a second recession and the ongoing problems with employment, housing and manufacturing negatively impacted financials, industrials and technology the most, while healthcare, telecommunications and utilities performed more positively. In the coming months, hedge funds are likely to continue to focus on sectors that have benefitted from emerging markets exposure, global stimulus, and corporate cash. “Managers feel it is likely that equity and debt markets will maintain an inverse relationship and trade within ranges until there is greater clarity around the global economic environment,” commented Mr. Gradante.
The Arbitrage/Event Driven Index showed very little change in August, dropping only -0.04%; merger arbitrage performed the best with gains of +0.90%, while the distressed index dropped -1.12% as equity markets declined. Convertible arbitrage gained +0.72%, balancing the gains from lower interest rates and increasing volatility with the negative impact of a widening of spreads. Hennessee’s Global/Macro Index gained +0.11%; international managers performed well thanks to “reduced exposures levels, strong region and stock selection, and overweight exposure to emerging markets.” Meanwhile, managers with short U.S. Treasury positions continued to lose money: “Managers expect the U.S. dollar to remain stable or even strengthen against other major currencies, but should weaken against commodity and emerging currencies,” predicted Mr. Gradante.
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