GLOBAL - US hedge funds were outpaced by equities in October, despite posting modest gains.
According to the Hennessee Hedge Fund Index, funds were up +0.91% last month.
But their performance was overshadowed by broad markets such as the S&P 500 Index (+8.84%), the Dow Jones Industrial Average (+10.60%) and the Nasdaq Composite (+13.45%).
But year-to-date, although hedge funds slid -4.8%, this was still better than the overall performance of the US equity markets, relative to the S&P500 (-21.89%), the DJIA ( -16.21%), and the Nasdaq (-31.81%). In addition, Lipper Mutual Funds were down -20.08% during the same period.
“Equity hedge fund managers were up only fractionally in October, consistent with their low net long exposure to the stock market,” said Charles Gradante, managing principal of Hennessee Group.
“However, the Republican sweep on election day gave many managers good reason to add to their equity exposure since President Bush’s fiscal stimulus package will likely get passed with ease.”
Other finding included:
- Latin American managers had the best performance in October with a +7.88% return as the newly elected President da Silva of Brazil softened his leftist stance. Healthcare/Biotech managers came in a distant second with a +2.88% return as strong earnings were announced and all the profitable biotech companies’ beat Wall Street earnings expectations. The third best performing style was technology with an October return of +2.72%.
- On the downside, high yield was October’s worst performer with a -2.93% drop, seeing as high yield bonds continued to trade down due to imbalances between supply and demand. Pacific Rim was the second worst performing style in October, posting a -1.90% return, mainly caused by Japan’s weak banking reform plan frustrating investors. Europe’s hedge fund managers came in third worst at -1.81% as the reluctance of the European Union’s Central Bank to lower interest rates caused investors to back off.
“Though S&P500 earnings in the third quarter were generally better than expected, hedge fund managers believe it continues to be a trader’s market, not an investor’s market,” added Gradante.
The Hennessee Hedge Fund Advisory Group is a US-based global hedge fund investment consulting firm, which advises individuals and institutions on over US$bn in assets.
*Hedge funds produced a return of –1.3% in September, according to the Hennessee Hedge Fund Index, as Hennessee chief Charles Gradante warned managers to reevaluate their strategies in the face of deflation.
I am concerned that some hedge fund managers are not positioned for deflation,” said Gradante, managing principal of Hennessee Group. “Right now, valuations are not as important as pricing power.
Hedge funds still outpaced the broad markets by –10.87% (S&P 500), (–12.37%) DJIA and (–10.86%) Nasdaq .
Year-to-date (YTD), hedge funds were down -5.52%, better than the broader US equity markets which stood at –28.23% (S&P 500), -24.24% (DJIA), –39.90% (Nasdaq), –24.06% (Lipper Mutual Funds).
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