The Hennessee Hedge Fund Index increased +2.46% in February (+2.18% YTD), while the S&P 500 gained +4.31% (+0.60% YTD), the Dow Jones Industrial Average rose +3.97% (-1.54% YTD), and the NASDAQ Composite Index jumped +4.98% (+3.15% YTD). Bonds were positive on the month, as the Barclays Aggregate Bond Index increased +0.53% (+2.02% YTD).
“The Hennessee Hedge Fund Index was up +2.46% for February with the top three strategies for the month being Healthcare and Biotech (+4.14%), Distressed (+3.72%) and International (+3.29%).” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “The bottom three strategies for the month were Short Biased (-2.34%), Market Neutral (-0.02%) and Convertible Arbitrage (+0.19%).”
“Risk assets reversed course again in February as volatility, measured by the VIX, subsided and market enthusiasm was restored.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “Investors stepped back into the market after January’s selloff and shrugged off disappointing European PMI data, a continued decrease in bank lending and emerging market tensions.”
Equity long/short hedge funds were positive in February, as the Hennessee Long/Short Equity Index gained +2.81% (+3.13% YTD). The best performing sectors were consumer staples (+6.69%), health care (+6.09%), and consumer discretionary (+5.95%), while underperforming sectors were energy (-1.04%), telecommunication services (+2.80%) and information technology (+2.94%). U.S. stocks reached record highs during February despite weak macro economic data.
“Managers are not changing their net long bias as there is no competition for equities and stock buybacks continue reducing supply.” reported Charles Gradante.
“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.
The Hennessee Arbitrage/Event Driven Index rose +1.83% in February (+2.50% YTD). The Barclays Aggregate Bond Index gained +0.53% (+2.02% YTD) as interest rates were modestly lower in February. High yield increased as the Merrill Lynch High Yield Master II Index increased +2.00% in February (+2.76% YTD). High yield spreads decreased rather dramatically, losing 40 basis points to end the month 381 basis points over treasuries. The Hennessee Distressed Index jumped +3.72% in February (+4.54% YTD) on the heels of a strong January return for the index. The Hennessee Merger Arbitrage Index gained +1.81% in February (+2.04% YTD) as the environment for M&A remained strong. The Hennessee Convertible Arbitrage Index was modestly higher, gaining +0.19% in February (+1.98% YTD).
The Hennessee Global/Macro Index gained 2.53% in February (+0.47% YTD). The Dow Jones UBS Commodity Index reversed course and jumped +6.23% (+6.54% YTD), while the MSCI ACWI Index gained +4.65% (+0.39% YTD) and the MSCI EAFE Index gained +5.35% (+1.06% YTD). The Hennessee International Index gained +3.29% in February (+0.33%). Large gains in Ireland, Denmark, Greece, Portugal and Finland far outweighed losses in Japan, Russia, Hungary and Mexico. Emerging markets were mostly positive for February, as the MSCI Emerging Market Index rose +3.19% (-3.62% YTD), while, the Hennessee Emerging Market Index gained +2.14% (-0.20% YTD). Emerging markets continued to underperform developed markets for the year as investors continue to see considerable growth and inflation risks in these markets. The Hennessee Macro Index rose +2.65% for the month of February (+0.83% YTD).
Fixed income managers were modestly positive in February as bond yields were relatively flat for the month with the 10-Year U.S. Treasury ending the month at 2.66%, down 1 basis point from 2.67% in January. Commodities were strong for the month, with gold rising +6.58%, silver jumping +10.61% and palladium gaining +5.55% for the month. The U.S. Dollar was relatively weak against major currencies, losing over -0.50% versus the Euro, -0.88% versus the British Pound, -0.25% versus the Japanese Yen and -0.39% versus the Canadian Dollar. Oil rose in February, with WTI gaining +5.23% and European Brent Blend Crude rising +2.18%. Natural gas continued to surge, jumping +23.46% for the month.