Hedge funds underperform in November, Many Investors bet Long on Gold

December 11th, 2009
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Consultant and advisory firm Hennessee Group LLC, which calculates the Hennessee Hedge Fund Indices using performance data reported from over 1,000 hedge funds, has released its latest data for November 2009. The Hennessee Hedge Fund Index, an “equally weighted average of the funds in the Hennessee Hedge Fund Indices,” advanced +1.70% last month, according to a a press release released this week. After comparing the Hennessee Index with other indices, including the S&P 500 (+5.34%), the Dow Jones (+6.51%), and the NASDAQ (+4.86%), Hennessee Managing Principal Lee Hennessee commented on hedge funds’ under-performance as security prices continued to rise. “The rally that commenced in March has been very broad based,” Mr. Hennessee said in the press release. “Stock specific fundamentals have not mattered much to investors. This has resulted in consistent losses in the short portfolios of many hedge funds and has served as a drag on performance.”

The Hennessee Long/Short Equity Index gained +1.76% last month, as equity markets rebounded but continued to lag behind “traditional counterparts due to their defensive posturing and reduced exposures.” Equity markets did, however, report better than expected earnings and experienced gains in all ten sectors. Hennessee anticipates that the momentum from the equity market’s rebound will continue to carry the market through the end of 2009. “The ‘December Effect’, whereby investors choose to defer paying taxes on equity market gains until the following year has historically provided support to stocks during the final month of the year and we anticipate this year to be no different,” Charles Gradante, Hennessee’s Co-Founder, explained.

Hennessee reported similar figures for other sector-specific indices, including the Arbitrage/Event Driven Index (+1.85%), the Hennessee Global/Macro Index (1.46%), and the Hennessee Macro Index (+1.00%). Long gold was a profitable and very common macro theme, according to the press release. Mr. Gradante commented, “The gold trade continued to snow ball in November as Central Banks have become net buyers along with major hedge funds. Never in my 38 year investment career have I seen so many respected investors focused on a single strategy.”

The Hennessee Convertible Arbitrage Index gained +0.75% this November, relying on “strong secondary market performance and lower interest rates” to offset the “slight widening of spreads and decline in volatility,” according to the press release. The Merger Arbitrage Index gained a similar +0.74%, and many merger arbitrage managers “anticipate increasing allocations as new deals emerge,” encouraged by the increase in bidding situations like Hershey’s and Kraft’s recent bids for Cadbury.

Despite the general under-performance in the broad markets last month, Mr. Gradante is optimistic about the year ahead. “We believe the market is close to entering the next phase, where stock prices will be driven by earnings, rather than multiple expansion,” he stated in the press release. “This should serve as a better environment for hedge funds and lead to outperformance in 2010.”
Related Article Tags: Multi-Strategy, Long Short, Equity, Debt and Global Macro Hedge Fund News

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