Investing January 9, 2004

Hennessee: Hedge Funds Up 1.9% in December; 19.7% in '03

January 9, 2004 (PLANSPONSOR.com) - For the 10th month in a row, the Hennessee Hedge Fund Index ended positive, up 1.92% in December and closing the books on 2003 19.69% in the black.
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The Index’s 2003 performance though, paled in comparison to many of the other benchmarks.   The Dow Jones Industrial average was up 25.33%, t he S&P 500 ended 2003 with a 28.55% gain while the NASDAQ rose 50.01%, Hennessee’s data showed.

Despite the inability of the Index to outperform the broader markets, it still had a remarkable year, in what Hennessee termed a “transition year.”   Overall, the Index had positive gains in every month expect February.

In the firm’s commentary for the year, Hennessee highlighted long/short hedge funds were up 22.18%.   The firm said in large part this measure trailed the S&P 500 and the Dow due to “the nature of the market drivers in 2003.”   Specifically, in the first half of the year, the equity markets were largely driven by liquidity, macro economic fundamentals and Iraq.

“If you didn’t have large net long exposures in April and May, you missed 45% of the equity market’s move for the year,” stated Charles Gradante, managing principal at Hennessee. “Stock specific fundamentals didn’t turn until the third quarter, when equity hedge funds began expanding portfolio exposures.”

Without question, the fair-haired child among the Index’s components was theLatin America Index, up a staggering 70.19%.   While every other module of the Index was higher, this year’s lone loser was the Short Biased Index,   down 21.26% in 2003.   Some of the other notable gains for the year were registered among:

  • Financial Equities Index – 36.25%
  • Healthcare and Biotech Index – 32.60%
  • Telecom and Media Index – 30.39%
  • Pacific Rim Index – 28.67%
  • Distressed Index – 26.78%
  • Emerging Markets Index – 24.49%
  • Value Index – 24.11%
  • International Index – 22.70%
  • Growth Index – 22.27%.

December Returns

December served as a good microcosm for the entire year.   Only one component of the Index, Short Biased Index had a negative return (-1.04%), as it was with the entire year,the strong broad market gains once again made it very difficult for dedicated short sellers.   Also not surprising was the month’s top performer, theLatin America Index with a return of 5.84%. 

The second best performer for the month was the Hennessee Pacific Rim Index, with a return of 4.80%. In third position was the Hennessee Emerging Markets Index, posting a return of 4.15%, as hedge fund managers with exposure to Latin America and the Pacific Rim were buoyed by positive economic figures.

On the other side, the Hennessee Technology Index was the second worst performing strategy in December, with only a slight increase, 0.14%. The third worst performer was the Hennessee Convertible Arbitrage Index, posting a return of 0.36%.

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