"Hedge funds have trailed equities on a relative basis in 2006 because of the unusually consistent strength in the equity markets,” explained Charles Gradante, Managing Principal of Hennessee Group LLC.

Year to date, the Hennessee Hedge Fund Index has gained 10.06%, versus the S&P 500's gain of 14.21%.

“There has only been one negative month for the S&P 500 in 2006. The last time there was only one negative month for the S&P 500 was in 1995, when the Hennessee Hedge Fund Index advanced 17.70% versus 37.57% for the S&P 500," he noted.

During November, the Hennessee Hedge Fund Index stretched its run of positive months to four, with the index returning 1.84%, beating the the Dow Jones Industrial Average, which rose 1.17% over the month, but losing out to the S&P 500, which rose by 1.9%, and the Nasdaq, which advanced 2.75%.

“All major hedge fund strategies experienced positive performance in November, with the exception of short biased managers,” observed E. Lee Hennessee, Managing Principal of Hennessee Group.

“It continues to be a very difficult environment for short selling and as such, most hedge fund managers have added to the long side allowing their net exposures to drift higher in light of the strength of the equity markets," he added.

The Hennessee Long/Short Equity Index advanced 2.09% in November (10.62% YTD), outpacing the S&P 500 DRI for the first time since May.

The Hennessee Arbitrage/Event Driven Index increased 1.27% in November (10.41% YTD), with returns strongest in credit-oriented strategies, such as the Hennessee Distressed Index, which posted a gain of 1.75% (13.08% YTD).

“The fixed income markets continue to be a conundrum for most managers,” observed Mr. Gradante. “Despite falling long term Treasury yields indicating a slowdown in the economy, corporate credit spreads continue to tighten in the face of a huge amount of debt issuance.”

The Hennessee Global/Macro Index advanced 1.94% in November (7.64% YTD). Global long/short equity funds continued to outperform their US funds, as the Hennessee International Index advanced 3.02% (11.48% YTD). Hennessee noted that global equity markets have generally been stronger than those in the US, with European equities being the top-performing region for the year. Macro funds also experienced positive performance, advancing 1.46% (2.22% YTD).

“The decline in the US dollar was beneficial for most macro managers, as was the increase in the price of gold and oil,” continued Mr. Gradante.

“Still, many continued to lose money betting that yields on longer maturity US Treasuries would rise, as the yield on the 10-Year Treasury Note ended the month at 4.46%. Nonetheless, macro managers are positioned to profit from the bond market when the yield curve steepens, however, geopolitical control of the yield curve is still a concern," he concluded.

The Hennessee Hedge Fund Indices are calculated from performance data supplied by a diversified group of over 1,000 hedge funds.