New York (HedgeCo.Net) – The Hennessee Hedge Fund Index increased +0.06% in June (+2.10% YTD), while the S&P 500 gained +3.96% (+8.66% YTD), the Dow Jones Industrial Average advanced +3.93% (+5.42% YTD), and the NASDAQ Composite Index increased +3.81% (+12.66%)

“It looked like June was going to be another poor month for risk assets until the last trading day of the month. The agreement from European Union leaders towards a future banking union resulted in a short-covering rally,” Charles Gradante, Managing Principal of Hennessee Group, said. “The markets continue to be macro driven. Trading volume is down, volatility is up, correlation is high, and macro events are driving price swings.”

Highlights include:

• Equity long/short managers posted modest positive performance,
• The Dow posted twenty-two days of triple-digit moves during the second quarter, compared with just six in the first quarter.
• The S&P 500 ended the month with a gain of nearly 2.5%
• Looking to July, managers expect volatility to continue
• Expectations for earnings have come down,
• Investors are nervous about the November elections and the year-end “fiscal cliff” of tax cuts and economic stimulus that could drive the U.S. economy into recession.

“Some pundits are saying that a ‘perfect storm’ is developing due to stalled growth in the United States, the European debt crisis, a slowdown in China, and military conflict in Iran,” commented Charles Gradante. “But many managers are taking a contrarian point of view, stating that this scenario is already built into stock prices. By any measure, stocks are cheap. With more than 60% of corporate sales from European firms originating internationally, investing in Europe may be around the corner.”

Also:

• Global mergers-and-acquisition activity has declined
• Victory for Greece’s pro-bailout party was well received by the markets
• The MSCI All-Country World Index advanced +6.79% in June (+0.77% YTD). Italy (+13.58%) and Spain (+20.63%) were top performers
• Emerging markets were also positive, but underperformed the developed markets
• Performance among commodities was mixed, with a sharp decline in oil, significant gains in natural gas and agriculturals, and mixed performance across metals

“For the year, hedge funds are underperforming traditional equity benchmarks.” Gradante said.

Alex Akesson
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