Guest post courtesy of the Hennessee Group.
May 12, 2014 – New York, NY – Hennessee Group LLC announced today that the Hennessee Hedge Fund Index lost -0.64% in April (+0.79% YTD), while the S&P 500 gained +0.62% (+1.93% YTD), the Dow Jones Industrial Average rose +0.75% (+0.03% YTD), and the NASDAQ Composite Index declined -2.01% (-1.49% YTD). Bonds were positive on the month, as the Barclays Aggregate Bond Index increased +0.84 % (+2.70% YTD).
“The NASDAQ momentum bubble rocked the confidence in all equities during April.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “In reality, we had a roller coaster month in April which ended with little change masking two declines of about 2% and 3%. A decline in corporate earnings growth, downward revision of China’s GDP forecast and the Ukraine situation made investors nervous. Managers are looking over their shoulders while reciting the lyrics to the Rolling Stones ‘Satisfaction’.”
“Managers we speak to seemed totally consumed with inconsistencies between what ‘should’ be happening in the market and what it is actually doing.” highlighted Charles Gradante. “The 10-Year U.S. Treasury is declining in yield, not rising. Amazingly, Greece was able to find buyers for sovereign 5-year debt yielding 4.75%. Really! Greece at 4.75%! Germany, the stalwart of the Euro, saw ‘real’ wages decline. China, the growth engine of the world, revised GDP growth downward for the second time this year. Longer duration bonds performed well, while shorter duration did not. TIPS had strong demand in April while floating rate bank loans saw a decline in demand. Managers cannot get a theme. And they can’t get no satisfaction.”
“The Hennessee Hedge Fund Index was down -0.64% with the top three strategies for the month being Latin America (+1.60%), High Yield (+1.15%) and Value (+1.01%).” highlighted Charles Gradante. “The bottom three strategies for the month were Technology (-4.99%), Healthcare and Biotech (-3.92%) and Asia – Pacific (-2.01%).”
“Managers continue to maintain bullish reporting to Hennessee that ‘bull markets don’t die of old age. Bull markets end with a recession, excessive valuations or a fat tail event’.” reported Lee Hennessee, Co-Founder of Hennessee Group LLC. “However, the fat tail event seems to point to unexpected steepening of the yield curve.”
During the month of April the VIX started under 14 and quickly rose as high as 17 mid-month but headed back down to 14 by the end of the month. Correspondingly, the S&P 500 rose as high as 1,890 in the beginning of the month and dropped rather sharply down near 1,815 in the middle of the month. The index recovered its losses to end the April just shy of monthly highs. Hedge fund managers had a difficult time weathering the back and forth direction of the market during April.
Equity long/short hedge funds were negative in April, as the Hennessee Long/Short Equity Index dipped -1.24% (+1.00% YTD). The best performing sectors were energy (+5.11%), utilities (+4.20%), and consumer staples (+2.70%), while underperforming sectors were financials (-1.64%), consumer discretionary (-1.41%) and healthcare (-0.60%). The utilities sector continues to be the best performing sector for the year having gained +13.60% YTD through April, while consumer discretionary is bringing up the rear, having lost -4.53% YTD through April.
“Managers are not changing their net long bias as there is no competition for equities and stock buybacks continue reducing supply.” reported Charles Gradante. “Hedge fund managers continued to reduce exposures to high beta stocks on the long and short side in April.”
“Discounted cash flow models finally seem to be factoring in the possibility of higher interest rates and questionable cash flows beyond the next three years” commented Dean Rubino, President of Terrapin Asset Management.
The Hennessee Arbitrage/Event Driven Index increased +0.11 % in April (+2.26% YTD). The Barclays Aggregate Bond Index gained +0.84% (+2.81% YTD) as interest rates were slightly lower for the month. High yield increased as the Merrill Lynch High Yield Master II Index increased +0.69% in April (+3.71% YTD). High yield spreads were slightly lower in April, losing 6 basis points to end the month 371 basis points over treasuries. The Hennessee Distressed Index was flat in April (+3.50% YTD). The Hennessee Merger Arbitrage Index gained +0.16% in April (+1.08% YTD). The Hennessee Convertible Arbitrage Index also performed well, gaining +0.68% for the month (+3.80% YTD).
Charles Gradante noted that, “Global markets continue to be choppy with Greece and Russia down -9.30% and -6.47%, respectively, during the month as Macro managers continue to take losses. Japan continued its downward slide losing -2.59% for the month.
Most macro managers have all but eliminated their bets on gold but still believe in its future as devaluation of the dollar is inevitable in their analysis.” reported Charles Gradante.
The Hennessee Global/Macro Index decreased -0.45% in April (-0.91% YTD). The Dow Jones UBS Commodity Index was slightly higher for April, gaining +2.43% (+9.58% YTD), while the MSCI ACWI Index gained +0.75% (+1.36% YTD) and the MSCI EAFE Index gained +1.09% (+1.10% YTD). The Hennessee International Index lost -1.56% in April (-2.63%). Large gains in New Zealand, Singapore, the UK, Norway, Spain and France far outpaced heavy losses in Japan, Israel, the Netherlands and Sweden. Emerging markets were relatively flat in April with noteworthy gains in Egypt, Brazil, Turkey, Peru, the Philippines, and Thailand. Greece and Russia both experienced severe losses of well over -5.0% for April, dragging down what would have been an otherwise relatively strong month. The MSCI Emerging Market Index rose +0.06% (-0.74% YTD), while hedge fund managers slightly outperformed the index, as the Hennessee Emerging Market Index gained +0.31% (+1.07% YTD).
The Hennessee Macro Index increased +0.26 for the month of April (-1.80% YTD). Fixed income managers were modestly positive in April as bond yields were slightly lower for the month with the 10-Year U.S. Treasury ending the month at 2.71%, down 1 basis point from 2.72% in March. Commodities were mixed for April, with gold gaining +0.50%, palladium jumping +4.33% and silver dropping -2.90%. The U.S. Dollar was relatively weak against most currencies, losing -0.66% versus the Euro, -0.07% versus the Australian Dollar, -1.07% versus the British Pound and -0.22% versus the Japanese Yen. Oil also dropped in April, with WTI losing -1.48% and European Brent Blend Crude slipping -0.53%. Natural gas also continued its slide, losing -6.92% for April.
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.