Hennessee Group LLC announced today that the Hennessee Hedge Fund Index increased +1.37% in October (+9.90% YTD), whilethe S&P 500 gained +4.46% (+23.16% YTD), the Dow Jones Industrial Average increased +2.75% (+18.63% YTD), and the NASDAQ Composite Index jumped +3.93% (+29.81% YTD). Bonds were also positive on the month, as the Barclays Aggregate Bond Index gained +0.81% (-1.09% YTD).
“Equity markets had their third best month of the year in October on the heels of the debt ceiling increase; not earnings, not the GDP nor employment.” commented Charles Gradante, Co-Founder of Hennessee Group LLC. “Hedge funds underperformed once again making it 8 out of the last 10 months. The only months hedge funds beat the market was in the only two down months for 2013; June (-1.50%) and August (-3.13%). One long-short equity manager summed it up by stating: ‘Just because stocks are the only asset class in town doesn’t mean I should abandon my shorts and go 100% long equities. That’s not what a hedge fund does. We rely on “rational” markets where stock fundamentals are the drivers. The market in total and stocks I’m short specifically continue to rise on bad news, poor year-over-year comparables and lower earnings guidance. It’s painful but I will stay hedged and wait this maniacal complacency out. By the way, Google was profitable when it came public. Twitter is not and at a market cap of $25 Billion it would place in the top 200 companies of the SP 500. The market is making big bets on many stocks whose future is not that clear to me. Especially when the Fed begins to taper. The tide will move out and we will see whose wearing swim trunks.’”
Equity long/short hedge funds were positive in October, as the Hennessee Long/Short Equity Index gained +1.29% (+15.07% YTD). The best performing sectors were telecommunication services (+7.35%), consumer staples (+6.13%), and industrials (+5.05%). The underperforming sectors were financials (+3.15%), utilities (+3.66%) and energy (+4.07%). The market continued the strong rally from September, aided by the last minute US debt deal, continued speculation the Fed would maintain its bond-buying program and stronger Chinese macroeconomic data. The Fed also announced Janet Yellen will replace Ben Bernanke as Fed Chairman, giving hope to an employment recovery, where the unemployment rate now stands at 7.2%, the lowest level for nearly five years.
“In terms of sub-strategies, Healthcare and Biotech long-short equity managers are up (+26.82%) through October followed by Value managers (+17.73%) and Financial Equity managers (+15.86%).” commented Lee Hennessee, Co-Founder of Hennessee Group LLC. “The poorest performing sub-strategies through October were short biased (-25.02%), Macro (-2.42%) and Latin America (+1.20%)”
The Hennessee Arbitrage/Event Driven Index rose +1.10% in October (+8.14% YTD). The Barclays Aggregate Bond Index gained +0.81% (-1.09% YTD) as interest rates continued to decline in October, aided by the debt deal and the Fed’s decision to continue its monthly bond purchases. High yield also increased as the Merrill Lynch High Yield Master II Index jumped +2.46% (+6.34% YTD). High yield spreads decreased rather dramatically, losing 47 basis points to end the month 436 basis points over treasuries as investor’s appetite for risk continued to increase. The Hennessee Distressed Index climbed +1.34% in October (+12.23% YTD). Distressed portfolios were also helped by a strong market. The Hennessee Merger Arbitrage Index gained +0.41% in October (+6.28% YTD). Managers continued to post gains as deal spreads tightened and markets rallied. The Hennessee Convertible Arbitrage Index rose +0.98% in October (+6.95% YTD).
“Global/Macro Index was up for the month and the year (+1.68% and +4.12%, respectively) with Macro managers a drag on the index, up for the month (+0.34%) and down for the year (-2.42%) mostly due to losses in currency and commodity futures that overwhelmed gains in global equities” added Charles Gradante.
The Hennessee Global/Macro Index gained +1.68% in October (+4.12% YTD). Macro managers experienced gains as positive economic news came out of China, with the country’s third quarter GDP growth rate up 7.8% year-over-year. Despite this positive news, the country was the worst performing Asian market as interbank interest rates rose, raising concern about possible tighter future monetary policy. The MSCI EAFE Index jumped +3.31% (+16.81% YTD). The Hennessee International Index gained +0.86% (+5.55%). Emerging markets also posted strong returns, as the MSCI Emerging Market Index gained +4.76% (-3.70% YTD), while, the Hennessee Emerging Market Index gained +2.11% (+5.09% YTD). The Hennessee Macro Index increased +0.34% for the month of September (-2.42% YTD). The Czech Republic, Egypt, Indonesia, India and Peru saw relative outperformance while Russia, Colombia, Mexico and Chile all slightly underperformed.
Fixed income managers gained in October as bond yields decreased for the month with the 10-Year U.S. Treasury ending the month at 2.55%, down from 2.61% in September. Commodities posted mixed results for the month, with gold losing -0.45% for the month of October, while silver and platinum rose, gaining +0.99% and +3.23% for the month, respectively. The U.S. Dollar what relatively flat against major currencies, ending October down -0.03%. The Euro returned +0.42% for the month, while the Japanese Yen increased a modest +0.09%. Crude oil continued its slide, losing -5.81% for the month while natural gas gained +0.59% for the month.