Ω
Rallies in Stocks, Bonds, and Commodities Contribute to 6.26% Gain for 2010
Managed futures gained 2.85% in December according to the Barclay CTA Index compiled by BarclayHedge. The Index was up 6.26% for the year.
“As investor psychology fluctuated between risk-on and risk-off during 2010, the major market sectors – equities, bonds, currencies, and commodities – alternated rallies with price declines,” says Sol Waksman, founder and president of BarclayHedge.
All eight of Barclay’s CTA indices had gains in December. The Barclay Diversified Traders Index was up 4.19%, Systematic Traders gained 3.17%, Discretionary Traders were up 1.83%, and Agricultural Traders gained 1.74%.
“Renewed optimism for growth in 2011 helped to propel prices upward for equities and commodities while simultaneously depressing bond prices,” says Waksman.
There were no losing managed futures strategies in 2010. The Barclay Agricultural Traders Index was up 10.74% for the year, Diversified Traders gained 8.69%, Systematic Traders rose 6.97%, and Discretionary Traders were up 5.01%.
“In spite of several sharp loss-generating price reversals, the major price moves were to the upside and provided sufficient gains to more than offset most losses,” says Waksman.
"At year-end, more than 81 percent of the CTAs tracked by BarclayHedge had generated profits for their investors.”
Tuesday, January 18, 2011
Barclay Hedge Fund Index Gains 2.88% in December; Up 10.86% in 2010
Ω
Most Hedge Funds Recoup 2008 Losses
Hedge funds gained 2.88% in December according to the Barclay Hedge Fund Index compiled by BarclayHedge. The Index is up 10.86% in 2010.
“After two years of strong gains, close to 64 percent of the hedge funds that report data to us have now recovered from losses in 2008,” says Sol Waksman, founder and president of BarclayHedge.
"Although hedge funds underperformed US equities in 2010, +15.07 percent for the S&P 500 versus +10.95 percent for the Barclay Hedge Fund Index, the S&P 500 still remains 8.3 percent below its year-end 2007 close, while the hedge fund index is up 7.59 percent."
Overall, 17 of Barclay’s 18 hedge fund indices had a positive return in December. The Barclay Equity Long Bias Index was up 5.41%, Healthcare & Biotechnology gained 3.37%, Equity Long/Short rose 3.07%, Pacific Rim Equities gained 2.62%, and the Event Driven Index was up 2.43%.
“Equity markets rallied as bullish sentiment returned in December, with investors focused on upward revisions of GDP growth estimates for 2011,” says Waksman.
The same 17 indices all had gains at the end of 2010. Equity Long Bias was up 14.33% for the year, Distressed Securities were up 12.57%, Technology gained 12.41%, Convertible Arbitrage rose 12.23%, and Emerging Markets were up 12.05%.
"Global rallies in equity and fixed income markets in 2010 and compression of credit spreads were the main drivers of return across all hedge fund strategies other than short equities," says Waksman.
The only losing strategy in December was Equity Short Bias, which fell 6.15%. Following a record gain of 40.91% in 2008 when equity markets plummeted, Equity Short Bias lost 18.80% in 2009, and another 14.67% in 2010.
The Barclay Fund of Funds Index gained 1.94% in December, and is up 4.73% for the year.
Most Hedge Funds Recoup 2008 Losses
Hedge funds gained 2.88% in December according to the Barclay Hedge Fund Index compiled by BarclayHedge. The Index is up 10.86% in 2010.
“After two years of strong gains, close to 64 percent of the hedge funds that report data to us have now recovered from losses in 2008,” says Sol Waksman, founder and president of BarclayHedge.
"Although hedge funds underperformed US equities in 2010, +15.07 percent for the S&P 500 versus +10.95 percent for the Barclay Hedge Fund Index, the S&P 500 still remains 8.3 percent below its year-end 2007 close, while the hedge fund index is up 7.59 percent."
Overall, 17 of Barclay’s 18 hedge fund indices had a positive return in December. The Barclay Equity Long Bias Index was up 5.41%, Healthcare & Biotechnology gained 3.37%, Equity Long/Short rose 3.07%, Pacific Rim Equities gained 2.62%, and the Event Driven Index was up 2.43%.
“Equity markets rallied as bullish sentiment returned in December, with investors focused on upward revisions of GDP growth estimates for 2011,” says Waksman.
The same 17 indices all had gains at the end of 2010. Equity Long Bias was up 14.33% for the year, Distressed Securities were up 12.57%, Technology gained 12.41%, Convertible Arbitrage rose 12.23%, and Emerging Markets were up 12.05%.
"Global rallies in equity and fixed income markets in 2010 and compression of credit spreads were the main drivers of return across all hedge fund strategies other than short equities," says Waksman.
The only losing strategy in December was Equity Short Bias, which fell 6.15%. Following a record gain of 40.91% in 2008 when equity markets plummeted, Equity Short Bias lost 18.80% in 2009, and another 14.67% in 2010.
The Barclay Fund of Funds Index gained 1.94% in December, and is up 4.73% for the year.
Hedge Fund Managers Turn Extremely Bullish on U.S. Equities According to Survey
Ω
Hedge Fund Managers Betting Aggressively on Economic Recovery and Many Increase Leverage
Hedge fund managers have turned extremely upbeat on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for December. About 46% of the 92 hedge fund managers the firms surveyed in the past week are bullish on the S&P 500, while only 19% are bearish.
“These bullish and bearish readings are the highest and lowest, respectively, since the inception of our survey in May,” said Sol Waksman, founder and President of BarclayHedge. “The enthusiasm is not surprising. Our Hedge Fund Index shows consistent gains in 13 of the past 14 years, and hedge funds are firmly on track for a profitable 2010.”
About 54% of hedge fund managers are bearish on the 10-year Treasury note, while only 14% are bullish. These readings are the highest and lowest, respectively, since May. In contrast, 39% of managers are bullish on the U.S. dollar index, while only 13% are bearish. These readings are also the highest and lowest since May. Meanwhile, 23% of managers aim to lever up in the coming weeks, the largest share in six months.
“Managers are betting aggressively on the economic recovery,” explained Vincent Deluard, Executive Vice President at TrimTabs. “While markets spent most of 2010 oscillating between overblown fears of a double-dip recession and irrational exuberance about a V-shaped recovery, an inflationary growth consensus has emerged heading into 2011. Moreover, the fact that every sentiment measure under the sun shows sky-high confidence could indicate that investors are a touch too jubilant. The bandwagon might be overly packed.”
About half of managers attribute higher Treasury yields to expectations of higher inflation and stronger economic growth, while only 4% cite the negative debt implications of the extension of the Bush tax cuts. Meanwhile, a majority of managers feels precious metals are the most overbought asset.
“We are a little surprised to see precious metals top the list,” noted Deluard. “Gold funds generally took in more money in 2009 than they have received in 2010, and our flow data suggests bonds are much more overbought than metals. Mom and pop have been dumping bond ETFs and mutual funds for two months, but only after they poured a staggering $705.5 billion into them between January 2009 and October 2010. If a bubble is to burst in 2011, we believe bonds are the strongest candidate.”
Hedge Fund Managers Betting Aggressively on Economic Recovery and Many Increase Leverage
Hedge fund managers have turned extremely upbeat on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for December. About 46% of the 92 hedge fund managers the firms surveyed in the past week are bullish on the S&P 500, while only 19% are bearish.
“These bullish and bearish readings are the highest and lowest, respectively, since the inception of our survey in May,” said Sol Waksman, founder and President of BarclayHedge. “The enthusiasm is not surprising. Our Hedge Fund Index shows consistent gains in 13 of the past 14 years, and hedge funds are firmly on track for a profitable 2010.”
About 54% of hedge fund managers are bearish on the 10-year Treasury note, while only 14% are bullish. These readings are the highest and lowest, respectively, since May. In contrast, 39% of managers are bullish on the U.S. dollar index, while only 13% are bearish. These readings are also the highest and lowest since May. Meanwhile, 23% of managers aim to lever up in the coming weeks, the largest share in six months.
“Managers are betting aggressively on the economic recovery,” explained Vincent Deluard, Executive Vice President at TrimTabs. “While markets spent most of 2010 oscillating between overblown fears of a double-dip recession and irrational exuberance about a V-shaped recovery, an inflationary growth consensus has emerged heading into 2011. Moreover, the fact that every sentiment measure under the sun shows sky-high confidence could indicate that investors are a touch too jubilant. The bandwagon might be overly packed.”
About half of managers attribute higher Treasury yields to expectations of higher inflation and stronger economic growth, while only 4% cite the negative debt implications of the extension of the Bush tax cuts. Meanwhile, a majority of managers feels precious metals are the most overbought asset.
“We are a little surprised to see precious metals top the list,” noted Deluard. “Gold funds generally took in more money in 2009 than they have received in 2010, and our flow data suggests bonds are much more overbought than metals. Mom and pop have been dumping bond ETFs and mutual funds for two months, but only after they poured a staggering $705.5 billion into them between January 2009 and October 2010. If a bubble is to burst in 2011, we believe bonds are the strongest candidate.”
Thursday, January 13, 2011
Hedge funds may finally be losing their sex appeal
Ω
A small but growing number of investors believe these once-free spirited portfolios, viewed as the cutting edge of finance for most of the past decade, have become too conservative and boring.
Large and cautious pension fund and endowment clients are increasingly calling the shots in the industry, and investors such as funds of funds and rich individuals need to take matters into their own hands if they want higher returns.
"Some managers ... over the past two years have become too dull and the probability that they will become dead wood in the portfolio is too high," said Morten Spenner, chief executive of funds of hedge funds firm International Asset Management IAM.L.
Managers made 10.2 percent last year, according to Hennessee Group, lagging behind the S&P's .SPX 12.8 percent gain and 17.5 percent at the average stock mutual fund...
Complete article
A small but growing number of investors believe these once-free spirited portfolios, viewed as the cutting edge of finance for most of the past decade, have become too conservative and boring.
Large and cautious pension fund and endowment clients are increasingly calling the shots in the industry, and investors such as funds of funds and rich individuals need to take matters into their own hands if they want higher returns.
"Some managers ... over the past two years have become too dull and the probability that they will become dead wood in the portfolio is too high," said Morten Spenner, chief executive of funds of hedge funds firm International Asset Management IAM.L.
Managers made 10.2 percent last year, according to Hennessee Group, lagging behind the S&P's .SPX 12.8 percent gain and 17.5 percent at the average stock mutual fund...
Complete article
U.S. Private Equity Fund-Raising Falls 16% In 2010 Despite High Hopes From GPs
Ω
Dow Jones LP Source Private Equity Funds Raised $86.3 Billion in 2010
Buyout, Venture Fund-Raising Declined as Distressed Debt, Mezzanine Fortunes Rose
U.S. private equity fund-raising defied expectations in 2010, declining even further from the low levels of 2009 as 336 funds raised $86.3 billion, down 16% from the $102.2 billion raised by 366 funds in 2009, according to figures from Dow Jones LP Source. While most sectors experienced a slowdown, 2010 saw a few bright spots as Distressed Debt funds, Mezzanine funds and Industry-focused funds raised more money than they did in 2009.
Although overall fund-raising was down for the year, in the fourth quarter, firms raised $26.7 billion in 65 funds, up 19% from the $22.5 billion raised by 101 funds in the same period in 2009.
“Despite high expectations for fund-raising in 2010, many firms ended up sitting by the edge of the pool so that they could focus on returning capital to investors,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “As we head into 2011, more firms are diving into the fund-raising market, either because they have a better story to tell or because they can’t afford to wait any longer.”
Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.
Mid-Market Buyout Funds Outshine Mega Funds
Buyout fund-raising garnered $53.3 billion across 138 funds in 2010, a 9% decrease from the $58.4 billion raised by 148 funds in 2009. In the fourth quarter, 32 Buyout funds raised $19.8 billion, a 53% increase from the same period last year.
Within the Buyout industry, Mid–market funds – those less than $1 billion in size – shined as firms with a tight focus on a specific industry managed to capture limited partners’ (LP) attention. Industry–focused funds collected $15.2 billion in 2010, up from $10.1 billion in 2009. Overall, Mid–market funds accounted for more than half of total Buyout fund-raising.
Mega funds, which are funds of $6 billion or more, continued to have a difficult time raising money in 2010. Only one U.S. fund, Blackstone Capital Partners VI LP, reached the mega-fund threshold in 2010, raising $14 billion. The $5 billion raised in 2010 for the Blackstone fund accounted for25% of buyout funds raised in the fourth quarter and 9% of buyout funds raised in 2010.
Distressed Debt, Mezzanine Fortunes Rise
Firms focused on Distressed Debt and turnaround investments represented a bright spot in 2010 fund-raising, as Distressed Debt funds attracted $18.4 billion, a 30% increase from 2009. Oaktree Capital Management LLC topped the distressed debt fund charts with a $4.4 billion final closing of Oaktree Opportunities Fund VIII LP, almost $3 billion of which was raised in 2010.
Mezzanine strategies also found favor among LPs in 2010, attracting $6.2 billion for 27 funds, up from $3.4 billion raised for 20 funds in 2009.
“In 2010, investors continued to bet that the economic recovery will be a lengthy one and that access to capital will remain constrained,” said Kreutzer. “They also had the benefit of a healthy supply of experienced distressed debt and mezzanine firms that were marketing new funds.”
Venture Capital Continues to Slide; Hits 7-Year Low
Venture Capital fund-raising fell to $11.6 billion across 119 funds, a 14% drop from the $13.5 billion collected by 133 funds in 2009. In the fourth quarter, 15 venture funds raised $2.4 billion, a 48% drop from the same period last year.
While LPs remained skeptical of the sector, a few firms pushed the envelope, notably Institutional Venture Partners. The firm raised $750 million for its latest fund, exceeding a $600 million target.
A complete overview of Venture Capital fund-raising.
Dow Jones LP Source Private Equity Funds Raised $86.3 Billion in 2010
Buyout, Venture Fund-Raising Declined as Distressed Debt, Mezzanine Fortunes Rose
U.S. private equity fund-raising defied expectations in 2010, declining even further from the low levels of 2009 as 336 funds raised $86.3 billion, down 16% from the $102.2 billion raised by 366 funds in 2009, according to figures from Dow Jones LP Source. While most sectors experienced a slowdown, 2010 saw a few bright spots as Distressed Debt funds, Mezzanine funds and Industry-focused funds raised more money than they did in 2009.
Although overall fund-raising was down for the year, in the fourth quarter, firms raised $26.7 billion in 65 funds, up 19% from the $22.5 billion raised by 101 funds in the same period in 2009.
“Despite high expectations for fund-raising in 2010, many firms ended up sitting by the edge of the pool so that they could focus on returning capital to investors,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “As we head into 2011, more firms are diving into the fund-raising market, either because they have a better story to tell or because they can’t afford to wait any longer.”
Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.
Mid-Market Buyout Funds Outshine Mega Funds
Buyout fund-raising garnered $53.3 billion across 138 funds in 2010, a 9% decrease from the $58.4 billion raised by 148 funds in 2009. In the fourth quarter, 32 Buyout funds raised $19.8 billion, a 53% increase from the same period last year.
Within the Buyout industry, Mid–market funds – those less than $1 billion in size – shined as firms with a tight focus on a specific industry managed to capture limited partners’ (LP) attention. Industry–focused funds collected $15.2 billion in 2010, up from $10.1 billion in 2009. Overall, Mid–market funds accounted for more than half of total Buyout fund-raising.
Mega funds, which are funds of $6 billion or more, continued to have a difficult time raising money in 2010. Only one U.S. fund, Blackstone Capital Partners VI LP, reached the mega-fund threshold in 2010, raising $14 billion. The $5 billion raised in 2010 for the Blackstone fund accounted for25% of buyout funds raised in the fourth quarter and 9% of buyout funds raised in 2010.
Distressed Debt, Mezzanine Fortunes Rise
Firms focused on Distressed Debt and turnaround investments represented a bright spot in 2010 fund-raising, as Distressed Debt funds attracted $18.4 billion, a 30% increase from 2009. Oaktree Capital Management LLC topped the distressed debt fund charts with a $4.4 billion final closing of Oaktree Opportunities Fund VIII LP, almost $3 billion of which was raised in 2010.
Mezzanine strategies also found favor among LPs in 2010, attracting $6.2 billion for 27 funds, up from $3.4 billion raised for 20 funds in 2009.
“In 2010, investors continued to bet that the economic recovery will be a lengthy one and that access to capital will remain constrained,” said Kreutzer. “They also had the benefit of a healthy supply of experienced distressed debt and mezzanine firms that were marketing new funds.”
Venture Capital Continues to Slide; Hits 7-Year Low
Venture Capital fund-raising fell to $11.6 billion across 119 funds, a 14% drop from the $13.5 billion collected by 133 funds in 2009. In the fourth quarter, 15 venture funds raised $2.4 billion, a 48% drop from the same period last year.
While LPs remained skeptical of the sector, a few firms pushed the envelope, notably Institutional Venture Partners. The firm raised $750 million for its latest fund, exceeding a $600 million target.
A complete overview of Venture Capital fund-raising.
Monday, January 10, 2011
HEDGE FUNDS ADVANCE +3.04% IN DECEMBER
Ω
Strong December Helps Drive Double-Digit Hedge Fund Returns for 2010
Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index advanced + 3.04% in December (+10.05% YTD), while the S&P 500 increased +6.53% (+12.79% YTD), the Dow Jones Industrial Average advanced +5.19% (+11.02% YTD), and the NASDAQ Composite Index increased +6.19% (+16.91% YTD). The Barclays Aggregate Bond Index declined -1.08% (+6.56% YTD) while the Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%). Global financial markets finished 2010 on a positive note as global equity, commodity and credit markets all strengthened in December.
"Hedge funds experienced their best monthly gain of the year, advancing +3.04% in December. The strong month drove hedge fund performance to +10.05% for 2010, " said Lee Hennessee, Managing Principal of Hennessee Group. "The best performing strategies for the year were event driven, distressed, fixed income and emerging markets."
"Hedge funds underperformed traditional equity benchmarks in 2010. However, based upon historical analysis, it is typical for hedge funds to underperform in markets driven more by momentum than equity fundamentals. Since March 2009, when the market bottomed, the Hennessee Hedge Fund Index is up +39%, while the S&P 500 +71%," commented Charles Gradante, Co-Founder of Hennessee Group. "The real value of hedge funds is in risk-adjusted returns and downside protection. Since the beginning of the credit crisis in September 2008, the Hennessee Hedge Fund Index was up +16%, while the S&P 500 was down -2%. Hedge funds have also generated these returns with half the volatility."
The Hennessee Long/Short Equity Index advanced +3.08% in December to finish the year up +9.11%. Economic activity continued to strengthen in December, and the S&P ended the year with its best December since 1987. The month's +6.5% gain represented almost half the index's appreciation for the entire year. Managers benefited from increasing net and gross exposure levels in order to participate in the continued market rally. For the year, many long/short equity hedge funds struggled to outperform on a relative basis due in large part to the "risk on and risk off" trading environment that characterized most of the year.
Major macro themes such as the sovereign debt crisis and introduction of QE2 led to extreme levels of volatility and heightened correlations amongst stocks, making security selection very challenging, particularly for fundamentally based investors (See Hennessee Group's "Hedge Funds Struggle with New Market Order" White Paper from October 2010). In addition, many managers were conservatively positioned for most of the year with net and gross exposures levels below historical averages, resulting in additional underperformance. With the equity markets trading at 13x 2011 earnings, many long/short equity managers believe equities are still reasonably valued and also remain attractive from a technical standpoint. That said, they are concerned about the numerous headwinds that could derail the economic recovery and market rally, and therefore remain cautious entering 2011.
"Managers have long-term concerns about the current U.S. fiscal policy. The U.S. is spending $1.60 for every $1.00 of tax revenue. This is not sustainable. Either taxes will have increase or spending has to decline. In reality, it will likely be a combination of both, but any result is not good news for the market as it will be a drag on economic growth," commented Charles Gradante. "In the short term, the market seems to be overlooking this. Equities are reasonably priced resulting in the expectation that this rally will continue into 2011."
Arbitrage and event driven managers posted gains in December as the Hennessee Arbitrage/Event Driven Index advanced +2.66%. In addition, arbitrage and event driven sub-strategy was the top performing sub strategy for the year, increasing +12.35% in 2010. In December and for the year, managers benefited from a tightening of credit spreads and a continued rally in risk assets. The Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%) as spreads reached levels not seen since November 2007 despite an increase Treasury interest rates. High-yield issuance remained strong, and for the year, issuance has surged 50% to a record $353 billion. The Hennessee Distressed Index increased +3.14% in December (+14.76% YTD). Distressed managers experienced gains as long biased portfolios benefited from increased risk appetites of investors. In the U.S., the default rate ended the year at 3.3%, down from 4% at the end of the third quarter and from 14.1% a year earlier. For the year, several restructured companies emerged from bankruptcy and provided significant positive performance for hedge funds.
The Hennessee Merger Arbitrage Index increased +2.55% in December (+7.17% YTD). Managers benefited from a market rally and continued deal activity. Global mergers-and-acquisitions activity for 2010 reached $2.74 trillion, up from $2.2 trillion in 2009, according to Dealogic. Credit markets continue to be supportive of deal making, and managers expect mergers to increase in 2011 as companies look past economic uncertainty to address long-term growth. The Hennessee Convertible Arbitrage Index advanced +1.36% (+10.44% YTD) in December. Convertibles followed equities and ended out the year with a strong performance in December. Credit tightened as investors continue to search for yield. Convertible valuations richened while the new issue calendar remained quiet.
"Although Germany benefits from a weaker Euro, managers fear that the EU one trillion-dollar bail out fund will not be enough to handle future problems," commented Charles Gradante. "A potential result could be that Germany will force a restructuring of the monetary union to have parallel authority to regulate fiscal discipline resulting in macro-economic uncertainty and global market disruption." (See Hennessee Group's "Is This the Tip of Iceberg?" White Paper from February 2009)
The Hennessee Global/Macro Index advanced +2.70% in December (+9.32% YTD). Positive global markets helped drive gains as the Hennessee International Index climbed +2.64% during the month (+12.08% YTD) and the Hennessee Emerging Markets Index gained +2.83% (+13.65% YTD). For the year, despite the fact that global stock markets faced multiple sovereign debt scares in Europe and worries about a double-dip recession in the U.S., global markets posted gains. In Europe, positive performance was driven by Germany and England, while the PIIGS ( Portugual, Ireland, Italy, Greece and Spain) detracted from performance. In Asia, several markets posted strong gains, but the largest economies, China and Japan, experienced declines. Emerging markets were strong, and managers remain optimistic on the longer term outlook. The Hennessee Macro Index advanced +3.27% for the month (+7.96% YTD). Macro funds were a top performing strategy in December as they experienced one of their best months of the year. Managers profited from positions in long equities, long precious metals and other commodities, long oil, short the U.S. dollar, and short Treasuries. For the year, commodities have been a major source of profits as the Dow Jones-UBS Commodity Index rose +16.8% in 2010. Gold, a common hedge fund position, ended the year up +29.8%. Silver and palladium were also significant gainers, up + 83.8% and +97.3%, respectively. Oil prices stayed in a narrow band between $68 and $92 a barrel, but ended the year up +15%. Throughout the year, managers made gains in currencies by being short the euro and long the yen. The European debt crisis battered the euro, which declined against the U.S. dollar.
"Some macro managers are short silver going into 2011 after silver outperformed most major commodities in metals and agriculture," Commented Charles Gradante. "Silver was up 84% in 2010 while gold increased +30%." (See Hennessee Group's "Silver Poised to Outperform Gold" White Paper from March 2009).
* For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group's website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group's database of over 3,500 hedge funds and are net of fees and unaudited.
Strong December Helps Drive Double-Digit Hedge Fund Returns for 2010
Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index advanced + 3.04% in December (+10.05% YTD), while the S&P 500 increased +6.53% (+12.79% YTD), the Dow Jones Industrial Average advanced +5.19% (+11.02% YTD), and the NASDAQ Composite Index increased +6.19% (+16.91% YTD). The Barclays Aggregate Bond Index declined -1.08% (+6.56% YTD) while the Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%). Global financial markets finished 2010 on a positive note as global equity, commodity and credit markets all strengthened in December.
"Hedge funds experienced their best monthly gain of the year, advancing +3.04% in December. The strong month drove hedge fund performance to +10.05% for 2010, " said Lee Hennessee, Managing Principal of Hennessee Group. "The best performing strategies for the year were event driven, distressed, fixed income and emerging markets."
"Hedge funds underperformed traditional equity benchmarks in 2010. However, based upon historical analysis, it is typical for hedge funds to underperform in markets driven more by momentum than equity fundamentals. Since March 2009, when the market bottomed, the Hennessee Hedge Fund Index is up +39%, while the S&P 500 +71%," commented Charles Gradante, Co-Founder of Hennessee Group. "The real value of hedge funds is in risk-adjusted returns and downside protection. Since the beginning of the credit crisis in September 2008, the Hennessee Hedge Fund Index was up +16%, while the S&P 500 was down -2%. Hedge funds have also generated these returns with half the volatility."
The Hennessee Long/Short Equity Index advanced +3.08% in December to finish the year up +9.11%. Economic activity continued to strengthen in December, and the S&P ended the year with its best December since 1987. The month's +6.5% gain represented almost half the index's appreciation for the entire year. Managers benefited from increasing net and gross exposure levels in order to participate in the continued market rally. For the year, many long/short equity hedge funds struggled to outperform on a relative basis due in large part to the "risk on and risk off" trading environment that characterized most of the year.
Major macro themes such as the sovereign debt crisis and introduction of QE2 led to extreme levels of volatility and heightened correlations amongst stocks, making security selection very challenging, particularly for fundamentally based investors (See Hennessee Group's "Hedge Funds Struggle with New Market Order" White Paper from October 2010). In addition, many managers were conservatively positioned for most of the year with net and gross exposures levels below historical averages, resulting in additional underperformance. With the equity markets trading at 13x 2011 earnings, many long/short equity managers believe equities are still reasonably valued and also remain attractive from a technical standpoint. That said, they are concerned about the numerous headwinds that could derail the economic recovery and market rally, and therefore remain cautious entering 2011.
"Managers have long-term concerns about the current U.S. fiscal policy. The U.S. is spending $1.60 for every $1.00 of tax revenue. This is not sustainable. Either taxes will have increase or spending has to decline. In reality, it will likely be a combination of both, but any result is not good news for the market as it will be a drag on economic growth," commented Charles Gradante. "In the short term, the market seems to be overlooking this. Equities are reasonably priced resulting in the expectation that this rally will continue into 2011."
Arbitrage and event driven managers posted gains in December as the Hennessee Arbitrage/Event Driven Index advanced +2.66%. In addition, arbitrage and event driven sub-strategy was the top performing sub strategy for the year, increasing +12.35% in 2010. In December and for the year, managers benefited from a tightening of credit spreads and a continued rally in risk assets. The Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%) as spreads reached levels not seen since November 2007 despite an increase Treasury interest rates. High-yield issuance remained strong, and for the year, issuance has surged 50% to a record $353 billion. The Hennessee Distressed Index increased +3.14% in December (+14.76% YTD). Distressed managers experienced gains as long biased portfolios benefited from increased risk appetites of investors. In the U.S., the default rate ended the year at 3.3%, down from 4% at the end of the third quarter and from 14.1% a year earlier. For the year, several restructured companies emerged from bankruptcy and provided significant positive performance for hedge funds.
The Hennessee Merger Arbitrage Index increased +2.55% in December (+7.17% YTD). Managers benefited from a market rally and continued deal activity. Global mergers-and-acquisitions activity for 2010 reached $2.74 trillion, up from $2.2 trillion in 2009, according to Dealogic. Credit markets continue to be supportive of deal making, and managers expect mergers to increase in 2011 as companies look past economic uncertainty to address long-term growth. The Hennessee Convertible Arbitrage Index advanced +1.36% (+10.44% YTD) in December. Convertibles followed equities and ended out the year with a strong performance in December. Credit tightened as investors continue to search for yield. Convertible valuations richened while the new issue calendar remained quiet.
"Although Germany benefits from a weaker Euro, managers fear that the EU one trillion-dollar bail out fund will not be enough to handle future problems," commented Charles Gradante. "A potential result could be that Germany will force a restructuring of the monetary union to have parallel authority to regulate fiscal discipline resulting in macro-economic uncertainty and global market disruption." (See Hennessee Group's "Is This the Tip of Iceberg?" White Paper from February 2009)
The Hennessee Global/Macro Index advanced +2.70% in December (+9.32% YTD). Positive global markets helped drive gains as the Hennessee International Index climbed +2.64% during the month (+12.08% YTD) and the Hennessee Emerging Markets Index gained +2.83% (+13.65% YTD). For the year, despite the fact that global stock markets faced multiple sovereign debt scares in Europe and worries about a double-dip recession in the U.S., global markets posted gains. In Europe, positive performance was driven by Germany and England, while the PIIGS ( Portugual, Ireland, Italy, Greece and Spain) detracted from performance. In Asia, several markets posted strong gains, but the largest economies, China and Japan, experienced declines. Emerging markets were strong, and managers remain optimistic on the longer term outlook. The Hennessee Macro Index advanced +3.27% for the month (+7.96% YTD). Macro funds were a top performing strategy in December as they experienced one of their best months of the year. Managers profited from positions in long equities, long precious metals and other commodities, long oil, short the U.S. dollar, and short Treasuries. For the year, commodities have been a major source of profits as the Dow Jones-UBS Commodity Index rose +16.8% in 2010. Gold, a common hedge fund position, ended the year up +29.8%. Silver and palladium were also significant gainers, up + 83.8% and +97.3%, respectively. Oil prices stayed in a narrow band between $68 and $92 a barrel, but ended the year up +15%. Throughout the year, managers made gains in currencies by being short the euro and long the yen. The European debt crisis battered the euro, which declined against the U.S. dollar.
"Some macro managers are short silver going into 2011 after silver outperformed most major commodities in metals and agriculture," Commented Charles Gradante. "Silver was up 84% in 2010 while gold increased +30%." (See Hennessee Group's "Silver Poised to Outperform Gold" White Paper from March 2009).
* For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group's website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group's database of over 3,500 hedge funds and are net of fees and unaudited.
Hedge Funds Post Inflow of $13.0 Billion in November, Fifth Straight Inflow as Well as Heaviest Since February 2010
Ω
Risk Appetite Healthy: Equity Long-Short, Event Driven, and Emerging Markets Hedge Funds Post Large Inflows
TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $13.0 billion (0.8% of assets) in November 2010, the fifth straight inflow as well as the heaviest since February 2010.
“The year ahead looks bright for the hedge fund industry,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds returned 11.6% in 2010, and investors continue to pump money into the space. Additionally, we suspect pension managers will need to chase active returns because plans are underfunded and market yields are far too low to get the job done.”
Equity long-short funds hauled in $2.5 billion (1.3% of assets) in November 2010, the heaviest inflow of any hedge fund strategy, while event driven funds took in $2.2 billion (1.0% of assets) and emerging markets funds received $1.8 billion (0.8% of assets). Meanwhile, fixed income funds attracted $1.9 billion (1.2% of assets), the seventh straight inflow.
“Hedge fund investors have been much less bearish on bonds than mom and pop,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “Retail investors have been dumping muni, Treasury, and multisector bond mutual funds since prices started to tank, but seasoned market participants have yet to redeem fixed income assets. We are fundamentally bearish on bonds, but we expect to see bouts of bullishness when the economic outlook seems uncertain and crises in Europe bubble to the surface.”
Commodity trading advisors (CTAs) posted an outflow of $3.9 billion (1.4% of assets) in November, the first in nine months, although the redemption owed to a single large fund. Funds of hedge funds took in $473 million 0.1% of assets), the fifth straight inflow. Meanwhile, hedge fund managers could help juice equities in 2011.
“We estimate that about 50% of hedge fund managers will collect fees for their performance in 2010,” noted Deluard. “This is better than just 32% in 2009 and only 16% in 2008, but it is nowhere near the record 90% we saw in 2006. We think many managers are likely to invest aggressively in 2011. If they do, their purchasing will be a plus for asset prices.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. Go here for more information.
Risk Appetite Healthy: Equity Long-Short, Event Driven, and Emerging Markets Hedge Funds Post Large Inflows
TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $13.0 billion (0.8% of assets) in November 2010, the fifth straight inflow as well as the heaviest since February 2010.
“The year ahead looks bright for the hedge fund industry,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds returned 11.6% in 2010, and investors continue to pump money into the space. Additionally, we suspect pension managers will need to chase active returns because plans are underfunded and market yields are far too low to get the job done.”
Equity long-short funds hauled in $2.5 billion (1.3% of assets) in November 2010, the heaviest inflow of any hedge fund strategy, while event driven funds took in $2.2 billion (1.0% of assets) and emerging markets funds received $1.8 billion (0.8% of assets). Meanwhile, fixed income funds attracted $1.9 billion (1.2% of assets), the seventh straight inflow.
“Hedge fund investors have been much less bearish on bonds than mom and pop,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “Retail investors have been dumping muni, Treasury, and multisector bond mutual funds since prices started to tank, but seasoned market participants have yet to redeem fixed income assets. We are fundamentally bearish on bonds, but we expect to see bouts of bullishness when the economic outlook seems uncertain and crises in Europe bubble to the surface.”
Commodity trading advisors (CTAs) posted an outflow of $3.9 billion (1.4% of assets) in November, the first in nine months, although the redemption owed to a single large fund. Funds of hedge funds took in $473 million 0.1% of assets), the fifth straight inflow. Meanwhile, hedge fund managers could help juice equities in 2011.
“We estimate that about 50% of hedge fund managers will collect fees for their performance in 2010,” noted Deluard. “This is better than just 32% in 2009 and only 16% in 2008, but it is nowhere near the record 90% we saw in 2006. We think many managers are likely to invest aggressively in 2011. If they do, their purchasing will be a plus for asset prices.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. Go here for more information.
Subscribe to:
Posts (Atom)