January 14, 2015 – New York, NY – Hennessee Group LLC announced today that the Hennessee Hedge Fund Index gained +0.04% in December (+2.63% YTD), while the S&P 500 lost -0.42% (+11.39% YTD), the Dow Jones Industrial Average lost -0.03% (+7.52% YTD), and the NASDAQ Composite Index sunk -1.16% (+13.40% YTD). Bonds were positive on the month, as the Barclays Aggregate Bond Index increased +0.09% (+5.94% YTD). The equity market made over 50 record highs during 2014, the most since 1995, while the S&P also experienced another feat by not having 4 consecutive down days in a row during 2014.
“In December, managers went into risk-off mode as the rout in oil prices continued aggressively and signs of further deterioration in global economic growth.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “The absence of liquidity was the biggest portfolio concern as the equity market has become fairly valued and bonds were overpriced with high yield credits not getting solid bids causing spreads over treasuries to continue their expansion.”
"The top three strategies for the month were Healthcare and Biotech (+3.59%), Europe (+1.69%) and International (+1.66%).” highlighted Charles Gradante. "The bottom three strategies for the month were Latin America (-4.75%), Asia-Pacific (-2.33%) and Emerging Markets (-2.15%).”
During December, the VIX experienced a bumpy and eventful month. Starting the month under 13.5, volatility soon increased and the VIX jumped above 23, a gain of over 70%. Volatility subsided quickly and the VIX dropped back down to 14, however, as volatility picked up near the end of the month, the VIX rose back up to finish the month above 19.
Equity long/short hedge funds were positive for the month, as the Hennessee Long/Short Equity Index gained +0.72% (+4.30% YTD). The best performing sectors were utilities (+3.24%), financials (+1.62%), and consumer discretionary (+0.75%), while underperforming sectors were telecommunication services (-6.19%), information technology (-1.74%) and health care (-1.45%). The health care sector continues to be the best performing sector for the year having gained +23.30% YTD through December, while energy is bringing up the rear, having lost -9.99% YTD through December.
“In 2014, it was better to be lucky than smart. Passive ETF investing outperformed all active management classes (both hedge funds and long only).” reported Charles Gradante. “Goldman Sachs reported that 85% of the mutual funds underperformed the S&P 500 Index and Hennessee research estimates between 90% and 95% of hedge funds also underperformed.”
The Hennessee Arbitrage/Event Driven Index decreased -0.34% in December (+1.85% YTD). The Barclays Aggregate Bond Index gained +0.09% (+5.94% YTD) as interest rates were lower for the month. High yield decreased as the Merrill Lynch High Yield Master II Index dropped -1.47% in December (+2.50% YTD). High yield spreads were higher in December, increasing 37 basis points to end the month 504 basis points over treasuries. Margin debt as a percentage of GDP reached levels not seen since 1929. The Hennessee Distressed Index was negative in December by -1.74% (-0.90% YTD). The Hennessee Merger Arbitrage Index gained +0.03% for the month (+1.81% YTD). The Hennessee Convertible Arbitrage Index was negative for the month, losing -0.86% for the month (+1.54% YTD).
“Other risk-off fears included was the speculation that the strong dollar and brent oil moving to levels below $45 would reduce the demand for treasuries from oil producing countries and countries with large percent of debt based in U.S. dollar.” stated Charles Gradante.
The Hennessee Global/Macro Index lost -0.35% in December (+1.16% YTD). The Dow Jones UBS Commodity Index was lower in December, dropping -7.63% (-17.04% YTD), while the MSCI ACWI Index lost -2.04% (+2.10% YTD) and the MSCI EAFE Index dropped -3.52% (-7.35% YTD). The CRB index also had its fourth consecutive negative year. The Hennessee International Index gained +1.66% in December (+2.13%). The MSCI Emerging Market Index dropped -4.82% (-4.63% YTD), while hedge fund managers outperformed the index, as the Hennessee Emerging Market Index only lost -2.15% (-2.61% YTD).
The Hennessee Macro Index increased +0.01% for the month of December (+3.34% YTD). Fixed income managers were positive in December as bond yields were slightly lower for the month with the 10-Year U.S. Treasury ending the month at 2.17%, down 1 basis point from 2.18% in November. Treasuries experienced an unexpected rally during 2014, when most investors were anticipating weakness in the bond market. The U.S. dollar also hit a 9-year high against most major currencies. Commodities were mostly negative for December, with gold gaining +0.17%, WTI oil dropping -18.94% and European Brent Blend Crude sinking -23.12%. Oil dropped nearly 50% in roughly the last 6 months of the year. Chinese steel production declined for the first time in 3 years. Natural gas was also negative in December, ending the month with a loss of -26.98% bringing the YTD loss to -27.15%.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data obtained from publicly available information, internally developed data and other third party sources believed to be reliable. The Hennessee Hedge Fund Index is an equally-weighted average of the funds in the Hennessee Hedge Fund Indices®. Hennessee Group has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness, or reliability of such information. Past performance is no guarantee of future returns.