July 10, 2008 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, today announced that the Hennessee Hedge Fund Index declined -0.64% in June (-0.85% YTD) while the S&P 500 declined -8.60% (-12.84% YTD), the Dow Jones Industrial Average declined -10.19% (-14.43% YTD), and the NASDAQ Composite Index declined -9.10% (-13.53% YTD). Bonds fell, as the Lehman Aggregate Bond Index declined –0.08% (+1.13% YTD).
“Hedge funds preserved capital as the equity markets declined sharply in June,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “Many managers struggled in the first quarter as they were whipsawed by huge swings in volatility. However, during the second quarter, managers performed better as they maintained well-hedged, tighter exposures.”
The Hennessee Long/Short Equity Index declined -0.35% in June (-1.07% YTD) despite the equity markets selling off sharply. Managers were able to outperform the broad market due to conservative positioning (low gross and net exposures). In addition, managers were able to profit off short positions in the financial sector, which continued to decline in June. With the broad indices flirting with official “bear market levels” (down over -20% from highs in October 2007), managers remain extremely cautious and are hesitant to put money to work.
“Managers who attempted to catch a falling knife were hurt badly in June as the equity markets declined significantly,” said Charles Gradante, Managing Principal of Hennessee Group. “While some had believed the rebound in April was a sign that markets had stabilized from the credit crisis, it is now obvious that these markets are still very vulnerable as they fall through key support levels. Most believe that the market will not turn around until there is some improvement in the housing market, energy prices and financial sector. If the Dow doesn’t hold at 11,200, the next support will be at 10,600.”
The Hennessee Arbitrage/Event Driven Index declined -0.07% in June (-0.04% YTD). Arbitrage/Event Driven funds finished the first half of the year basically flat. In June, several hedge fund managers were hurt as credit spreads widened significantly from 6.57% to 7.53% over Treasuries. The Hennessee Distressed Index rose +1.17% in June (+1.73% YTD) due to a positive carry on portfolios and some investment-specific events which drove positive performance. The Hennessee Merger Arbitrage Index declined -1.43% in June (+0.20 YTD). Merger spreads widened as volatility increased in the equity markets. The Hennessee Convertible Arbitrage Index declined -0.16% in June (-0.53% YTD). Credit related losses were more than offset by gains due to an increase in volatility, as the VIX increased from 17.8 to 24.0. “Several managers have stated that convertibles are at the cheapest levels in 5 years,” commented Charles Gradante.
“The commodities boom has helped propel performance of macro managers thus far this year,” continued Mr. Gradante. “However, given a global economic slowdown, the run up in commodities may be long in the tooth. Macro managers are positioned to take advantage of a near term bull market correction in commodities. However, most believe the long term bull trend is still intact but with less momentum. In addition, macro mangers moved out of most emerging markets as $5 billion of mutual fund assets in those markets were liquidated in June.”
The Hennessee Global/Macro Index declined -1.56% in June (-1.89% YTD). International equities were down significantly, with the U.S., Europe and Asia all down high single digits, which caused the MSCI EAFE Index to decline -8.31% (-12.70% YTD). Performance for international long/short equity funds was a bit worse than that of U.S. long/short equity funds, as the Hennessee International Index declined -2.13% (-1.57% YTD). The Hennessee Macro Index advanced +2.21% for the month (+7.26% YTD), making it the best performing strategy year to date. Commodities continued their recent surge, helping to drive gains for macro managers, as the CRB Index gained +9.6% in June.
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.