New York, (HedgeCo.net) – The Hennessee Hedge Fund Index declined –1.35% in June (+0.20% YTD), while the S&P 500 decreased –5.39% (-7.57% YTD), the Dow Jones Industrial Average declined -3.58% (-6.27%), and the NASDAQ Composite Index fell -6.55% (-7.05% YTD). Bonds advanced, as the Barclays Aggregate Bond Index increased +1.57% (+5.33% YTD), due to increases in Treasuries, Investment Grade and High Yield bonds.
“The rebound from the worst recession since the 1930’s faces added risks from Europe’s debt crisis causing managers to remain intently focused on Europe ,” commented Charles Gradante , Co-Founder of Hennessee Group . “Increased bank funding stress and declining liquidity have been the main catalyst for the recent correction in global risk assets. Managers question the ability of some EU governments to bail out their banks when they are having difficulty funding sovereign debt, as credit default swaps for sovereign debt have widened at the same pace as credit default swaps for bank debt.”
“As in May, hedge funds continued to decline, amid a broad based reduction of risk and significant volatility. Hedge fund risk management performed well, with hedge funds declining only one-fourth of traditional benchmarks,” said Lee Hennessee , Managing Principal of Hennessee Group . “Managers remain cautiously positioned and expect volatility to continue. While many feel that the market could rally sharply to the upside on positive news, most remain unwilling to assume greater levels of risk in the current environment until they see stabilization.
Managers have consolidated core risk positions and added protection during the sell off, but remain long biased, as is typical for the strategy. While the pace of U.S. corporate defaults has slowed dramatically in 2010, managers are optimistic on the opportunity set for new distressed opportunities over the next five years. Managers report that many companies that have refinanced debt maturities have only delayed their balance sheet problems.
“The equity and bond market in June signaled a ‘ Japan like future’ for the U.S. economy, characterized by anemic GDP growth, large deficits, and benign inflation,” Gradante said. “Collectively, most hedge fund managers see better demographics for the U.S. relative to Japan , resulting in consumer demand prospects significantly better than Japan. The real debate is over when this pent-up demand will be unleashed.”
European and emerging markets held up relatively well in June, compared to the U.S. markets; however, they are down significantly more on a year-to-date basis. Hedge funds benefited from conservative portfolios, as the Hennessee International Index fell -0.80% (-0.02% YTD).
Risk-averse investors continued to shift into precious metals, benefiting hedge funds, as a key macro theme has been long gold, which hit a record high in June.
Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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