Hennessee Hedge Fund Index Advances 2.2% In May

by Phillip Morton, Investors Offshore.com

17 June 2008

Hennessee Group LLC, an adviser to hedge fund investors, has announced that the Hennessee Hedge Fund Index advanced 2.21% in May, outperforming both the Dow Jones Industrial Average and the broader S&P 500 indexes during the month.

“Hedge funds outperformed the overall markets in May, as managers were able to generate excess returns due to good stock selection in the Russell 2000 and NASDAQ markets,” commented E. Lee Hennessee, Managing Principal of Hennessee Group, continuing: “Managers have started to increase portfolio gross exposures, but remain extremely concerned as to how deep and prolonged the US economic recession will be."

The Hennessee Long/Short Equity Index advanced 2.54% in May (down 0.76% YTD) as volatility declined and equities continued to advance, led by small and mid cap stocks and the technology sector.

“While the Bear Stearns rescue may have signaled a peak in the financial crisis, managers generally believe that that the full impact of the credit crisis has yet to be felt,” commented Charles Gradante, Managing Principal of Hennessee Group. “In addition, managers continue to sell out of the money covered calls as a way to lower position cost basis.”

“The outlook for convertible arbitrage has improved dramatically in recent months,” added Gradante. “After months of forced selling and deleveraging by multi-strategy funds, conditions are improving as volatility has increased, credit spreads have widened, and valuations are cheap. As credit markets remain largely illiquid, more companies are going to the convertible window for financing, creating attractive terms for buyers.”

The Hennessee Arbitrage/Event Driven Index advanced 1.66% in May (up 0.02% YTD), while the Hennessee Global/Macro Index gained 1.67% in May ( down 0.18% YTD).

“Macro managers have closed out positions in gold as it failed to make new highs since gold hit USD1,000 in March,” Gradante explained, concluding:

“They remain short the US market (with the belief that it will test the double bottom of 11,500 and 11,800 on the Dow Jones Industrial Average) and short the US dollar against a long oil position (seeing USD150 per barrel oil).”

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