New York (HedgeCo.Net) – The Hennessee Hedge Fund Index gained +0.39% in March (+2.53% YTD), while the S&P 500 lost -1.74$% (+0.44% YTD), the Dow Jones Industrial Average rose dropped -1.97% (-0.26% YTD), and the NASDAQ Composite Index fell -1.26% (+3.48% YTD). Bonds were positive on the month, as the Barclays Aggregate Bond Index increased +0.46% (+1.61% YTD).
“Hedge funds did well on the long and short side as fundamentals played a greater role than momentum in stock performance.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “Lower rates in Europe gave rise to money flows into European equities. Financial equities did well as consolidation continues and an inverted yield curve seems to be averted, for the time being, by a weak Q1 GDP report. Stocks in emerging markets did well as their floating rate dollar denominated bank loans traded with liquidity as a fed rate hike seemed less likely to happen as predicted.”
The top three strategies for the month were Europe (+2.19%), Financial Equities (+1.41%) and Asia – Pacific (+1.29%). The bottom three strategies for the month were Latin America (-3.49%), Opportunistic (-0.99%) and Growth (-0.35%).
“However, the biggest story among hedge funds continues to be the speed with which the Euro and oil have declined and the possibility of a black swan ‘cause and effect event’. Managers have increased defensive measures and are on guard about possible market consequences seemingly more so than historically characteristic for the hedge fund industry.” highlighted Charles Gradante.
During March the VIX started near 13 as equity markets were near all-time highs at the end of February. As the month wore on and volatility set in as markets moved lower, the VIX seesawed its way higher to end the month above 15.
Equity long/short hedge funds were positive for the month, as the Hennessee Long/Short Equity Index gained +0.43% (+2.30% YTD). The best performing sectors were health care (+0.76%), consumer discretionary (-0.64%), and financials (-0.78%), while underperforming sectors were materials (-4.99%), telecommunication services (-3.79%) and information technology (-3.39%). The health care sector is the best performing sector for the year having gained +6.16% YTD through March, while utilities is bringing up the rear, having lost -6.02% YTD over the same time period.
“Managers are now facing Q1 earnings season and prior guidance reports for 2015 has made Q1 earnings suspect.” reported Charles Gradante. “Q1 earnings sets the tone for the first half of 2015. Hedge funds were not impressed with February’s S&P 500 earnings nor guidance. Managers lamented that the market rally in 2014 was largely on PE multiple expansion. This coupled with downward guidance for 2015 has forced hedge fund managers to be less sanguine about the market and reduce exposures going into March.”
The Hennessee Arbitrage/Event Driven Index increased +0.40% for the month (+1.78% YTD). The Barclays Aggregate Bond Index gained +0.46% (+1.61% YTD) as interest rates were lower for the month. High yield decreased as the Merrill Lynch High Yield Master II Index lost -0.53% in March (+2.55% YTD). High yield spreads were higher in March, increasing 36 basis points to end the month 482 basis points over treasuries. The Hennessee Distressed Index was slightly positive for the month by +0.01% (-1.23% YTD). The Hennessee Merger Arbitrage Index gained +0.38% for the month (+2.72% YTD). The Hennessee Convertible Arbitrage Index was also positive for the month, gaining +0.35% (+1.06% YTD).
“Macro managers made money in March in currencies, treasuries and oil but have begun to decrease their exposures in long dollar vs. Short euro and short oil due to expected increase in volatility in coming months.” stated Charles Gradante. “One manager commented that ‘the easy money in currencies and oil has been made. We have had a great run and it’s time to trim those trades and reduce related leverage’. Managers continue to make money in Germany as signs of a Eurozone recovery began to appear. Manages have regained confidence in Chinese equities as tax cuts, reductions in second home down payments were instituted to bolster the Chinese housing market along with stimulus to prop up domestic growth. With respect to Greece, some managers are willing to bet on a solution favorable to Greek debt.”
The Hennessee Global/Macro Index gained +0.33% in March (+3.64% YTD). The MSCI ACWI Index lost -1.78% (+1.83% YTD) and the MSCI EAFE Index fell -1.96% (+4.19% YTD). The Hennessee International Index gained +0.65% for the month (+4.40%). The MSCI Emerging Market Index lost -1.59% (+1.91% YTD), while hedge fund manages outperformed the index, as the Hennessee Emerging Market Index lost -0.14% (+1.62% YTD).
The Hennessee Macro Index increased +0.69% for the month (+4.55% YTD). Fixed income managers were positive in March as bond yields were lower for the month with the 10-Year U.S. Treasury ending the month at 1.95%, down 5 basis point from 2.00% in February. Commodities were mixed in March as WTI oil lost -4.25% and European Brent Blend Crude fell -8.81%. Natural gas was negative in March, ending the month with a loss of -5.02%.
Editing by Alex Akesson
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