GLOBAL - Short biased strategies posted the worst performance in April, caught by sudden rallies and stifled markets, according to the latest data from the Hennessee Hedge Fund Advisory Group.
Hennessee’s short index posted a –5.47% return in April. Hedge fund managers holding large short positions were caught out by the market’s quick turnaround and could not cover their shorts in time to completely mitigate losses. Market neutrals followed with a loss of –0.23% as manager’s shorts appreciated slightly more than their longs.
The current market situation also makes it very hard for short sellers to find good shorts that are not overcrowded.
Overall, the Hennessee Hedge Fund Index was up +3.04% last month, bringing the year to date return to +4.03%. But this still failed to beat broad market indices which rallied strongly in April, with the S&P 500 Index gaining +8.30% and the Dow Jones Industrial Average increasing +6.11%. The Nasdaq Index was up +9.18% (+9.65% YTD).
“The market may be on the verge of a momentum breakout but fundamentals are insufficient to sustain the momentum we experienced in April,” said Charles Gradante, managing principal of the Hennessee Group.
“Other factors contributing to a low conviction by hedge fundmanagers are the lack of insider buying, reduced foreign investment, 10 year highs in unemployment, and a lack of pricing power.”
Hennessee’s Latin America index was the top performer for the second consecutive month with a return of +14.61% (+19.63% YTD).
“The broad market has been chasing beta, causing some difficulty for hedge fund managers, who generally have been beta neutral to reflect their uncertainty as to the direction of the market,” added Gradante.
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