Hennessee Group on How Hedge Funds Are Navigating This Market

Hennessee Group LLC has released its November performance data for its Hedge Fund Index: it advanced +0.36% in November (+5.47% year to date).  Below is some select commentary on what they're seeing from various funds and how they're positioned:


Stockpicking Environment Improved

Hennessee Group's Managing Principal Charles Gradante said that hedge funds gained during the month mainly due to alpha from stock selection (as well as managing exposure levels). 

He went on to say that, "As correlation among securities has declined, the environment for stock selection has improved.  That said, managers remained concerned about continuing fiscal and political uncertainty and have reduced net exposure levels."

Managing Principal Lee Hennessee also highlighted that many fund managers are "somewhat optimistic about 2013 due to an accommodative Fed, an increase in bank lending, a continued housing recovery supported by record low mortgage rates, and lower gasoline prices, which should help the consumer."  


Hedgies Like Mortgages

Gradante also noted how many managers that initially were short subprime in 2007/08 have reversed course, building long positions via structured products earlier this year.

He pointed out that, "This has been a significant profit generator in 2012 and a lot of the easy money has been made.  While we have seen some profit taking in recent months, managers believe that this will continue to be a profitable trade as we continue to see mortgage quality improving."

Kyle Bass of Hayman Capital recently shared that 90% of what he owns is in bonds via a ton of RMBS/subprime exposure.

Hennessee Group on How Hedge Funds Are Handling This Market

Hennessee Group LLC has released September performance data for its Hedge Fund Index as it was up 1.26% in September (up 5.03% year to date).  Below is some select commentary of what they're seeing from various hedge funds:

Charles Gradante, Managing Principal of Hennessee notes that,

"Despite generally disappointing economic data in the US, the Fed's announcement of additional monetary stimulus encouraged investors to increase risk tolerance and led to a market rally.  Over the long term, managers are concerned that the global economy seems incapable of growing without constant liquidity from central banks.  Current monetary policy is extreme and untested, and it is likely to have negative long-term ramifications.  However, until then, 'don't fight the Fed' is still the rule."

Other Hedge Fund Index Performance Numbers

Global/Macro Index up 1.10% in September (up 3.32% year to date)

Arbitrage/Event Drive Index up 0.80% in September (up 6.06% year to date)

Long/Short Equity Index up 1.51% in September (up 5.13% year to date)


L/S Managers Pressured on Short Side of Portfolio

And given the focus on L/S managers on this site, we found this excerpt from Hennessee's release intriguing:

"While managers have generated significant gains on the long side of the portfolio, they continue to have difficulty shorting.  Managers report that 'the tide has been raising all ships in this low volume, climb-the-wall-of-worry rally, despite the deepening uncertainty of the global economy and the slowing pace of earnings growth.'  Managers report that many companies with deteriorating fundamentals have rallied more than the market over the past several quarters, resulting in short squeezes.  Most managers feel that the markets will continue to rally due to stimulus, but are concerned that fundamentals are not improving."