June 9, 2008 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, today announced that the Hennessee Hedge Fund Index advanced +2.21% in May (-0.10% YTD) while the S&P 500 advanced +1.07% (-4.64% YTD), the Dow Jones Industrial Average declined -1.42% (-4.73% YTD), and the NASDAQ Composite Index advanced +4.55% (-4.88% YTD). Bonds fell, as the Lehman Aggregate Bond Index declined –0.73% (+1.21%).
“Hedge funds outperformed the overall markets in May, as managers were able to generate excess returns due to good stock selection in the Russell 2000 and NASDAQ markets,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “Managers have started to increase portfolio gross exposures, but remain extremely concerned as to how deep and prolonged the U.S. economic recession will be.”
The Hennessee Long/Short Equity Index advanced +2.54% in May (-0.76% YTD) as volatility declined and equities continued to advance, led by small and mid cap stocks and the technology sector. “While the Bear Stearns rescue may have signaled a peak in the financial crisis, managers generally believe that that the full impact of the credit crisis has yet to be felt,” commented Charles Gradante, Managing Principal of Hennessee Group. “In addition, managers continue to sell out of the money covered calls as a way to lower position cost basis.”
“The outlook for convertible arbitrage has improved dramatically in recent months,” said Charles Gradante. “After months of forced selling and deleveraging by multi-strategy funds, conditions are improving as volatility has increased, credit spreads have widened, and valuations are cheap. As credit markets remain largely illiquid, more companies are going to the convertible window for financing, creating attractive terms for buyers.”
The Hennessee Arbitrage/Event Driven Index advanced +1.66% in May (+0.02% YTD). Arbitrage/Event Driven funds have been able to recoup the entirety of their losses from a very volatile first quarter. High yield bond managers profited as credit spreads tightened from 6.9% to 6.5% over Treasuries. The Hennessee Distressed Index rose +1.87% in May (+0.11% YTD). Corporate defaults for 2008 have already surpassed the total for all of 2007. Most credit managers continue to expect the default rate to increase to 5% and are holding high levels of cash that will be put to work as opportunities arise. The Hennessee Merger Arbitrage Index advanced +2.04% in May (+1.86% YTD). Merger spreads tightened as a result of reduced volatility in the equity markets and more accommodating M&A lending. In addition, the Clear Channel buyout came closer to completion, improving investor sentiment the sector. The Hennessee Convertible Arbitrage Index advanced +1.28% in May (-0.28% YTD). Credit related gains were partially offset by volatility related losses, as the VIX declined from 20.8 to 17.8.
“Macro managers have closed out positions in gold as it failed to make new highs since gold hit $1,000 in March,” continued Mr. Gradante. “They remain short the U.S. market (with the belief that it will test the double bottom of 11,500 and 11,800 on the Dow Jones Industrial Average) and short the U.S. dollar against a long oil position (seeing $150 per barrel oil).”
The Hennessee Global/Macro Index advanced +1.67% in May (-0.18% YTD). International equities were up slightly, though lagged most U.S. markets, as the MSCI EAFE Index advanced +0.28% (-4.79% YTD). Returns were the strongest in the emerging markets, particularly in Europe and Latin America, in comparison to more developed markets. Performance for international long/short equity funds was similar to that of U.S. long/short equity funds, as the Hennessee International Index advanced +2.48% (-0.72% YTD). The Hennessee Macro Index advanced +2.08% for the month (+5.40% YTD), making it the best performing strategy of the year to date. Commodities continued their recent surge, as oil prices rose above $130 per barrel (+30% YTD) and natural gas rose about $12 per million BTU (+60% YTD).
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group’s website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group’s database of over 3,500 hedge funds and are net of fees and unaudited. Past performance is no guarantee of future returns. ALL RIGHTS RESERVED. This material is for general information only and is not an offer or solicitation to buy or sell any security including any interest in a hedge fund.