Hennessee: February Sees Hedge Fund Slowdown

March 8, 2004 (PLANSPONSOR.com) - Hedge funds' performance slowed a bit in February with a 0.99% return over the month - a good deal shy of its 2.14% showing the month before.

That pushed year to date returns for the Hennessee Hedge Fund Index to 3.07%, according to a news release (See  Hennessee: Hedge Funds Turn in 2.14% January Showing ).


The broad market indices were up in February, with the S&P 500 DRI Index gaining 1.39% (3.26% YTD) and the Dow Jones Industrial Average advancing by 0.91% (1.24% YTD).   The Nasdaq Composite Index declined 1.76% (1.31% YTD).

“Despite positive performance in February, hedge fund managers believe the rally may be under pressure and are reluctant to increase net market exposure,” said Charles Gradante, managing principal, in a statement.   “The pipeline of leading stocks breaking out of well-formed bases has slowed considerably. Managers are leaning towards reducing net market exposure, however, given the negative carry for cash and many short positions, hedge funds are stuck between a rock and a hard place.”

Meanwhile, the Hennessee Emerging Markets Index was the top-performing component index in February with a gain of 2.90% (5% YTD).   Asia was the main driver as Taiwan’s economy expanded by 5.17% in the October through December 2003 period, primarily due to technology exports and the IMF raised Korea’s GDP growth forecast by 0.75%, from 4.75% to 5.5%. Next in line for the month was the Hennessee Pacific Rim Index, with a return of 2.4% (3.33% YTD) as Taiwan posted positive numbers and Korea received positive economic news.  

In third spot was the Hennessee Regulation D Index, posting a 2.35% return (6.47% YTD) as the need for capital is increasing in an expanding economy, particularly for middle-market companies that do not have easy access to capital markets.

At the other end of the return spectrum, the   Hennessee   Latin   America   Index   was the worst performing February strategy, posting a loss of 0.87% (-0.10% YTD).   Brazil’s hesitancy to cut rates due   to   inflation   concerns,   has   frustrated   investors   and   the weakening   political   stability   in   Venezuela   is   a   worry for the entire region.   According to Hennessee, the Hennessee Technology Index was the second worst performing strategy, with a drop-off of 0.25% (+3.05% YTD).   Higher beta technology names struggled as investors took profits and rotated to lower beta sectors.

This   was   also   reflected   in   credits,   as   investment   grades outperformed   high   yields   for   the   first time in months, according to Hennessee. The third worst performer was the Hennessee Convertible Arbitrage Index, posting a return of 0.08% (1.23% YTD).    Although   credit   spreads   expanded   slightly, volatility   was   not   impacted   and   drifted   lower   as   the   equity market continues to post gains without a major correction.