Hedge funds continue to trail S&P500 in 2006, says Hennessee

Despite an average return across strategies of 1.84 per cent in November, hedge fund performance continues to trail the US equity market so far in 2006, according to the advisory firm that calculates the Hennessee Hedge Fund Index.

Although the Hennessee Hedge Fund Index advanced by 1.84 per cent in November and is up 10.06 per cent for the first 11 months of the year, hedge funds failed to match the performance of two of the three major US stock market indices last month and trails all three for the year to date, Hennessee Group reports.

The most broadly-based US market index, the S&P 500, was up by 1.90 per cent in November and by 14.21 per cent so far in 2006, while the Dow Jones Industrial Average was up by 1.17 per cent and 14.04 per cent respectively, and the Nasdaq Composite Index by 2.75 per cent and 10.26 per cent.

'Hedge funds have trailed equities on a relative basis in 2006 because of the unusually consistent strength in the equity markets,' says Charles Gradante, managing principal of Hennessee Group. 'There has only been one negative month for the S&P 500 in 2006, for the first time since 1995,' when the S&P 500 advanced 37.57 compared with 17.70 per cent for the Hennessee Hedge Fund Index.

The Hennessee Hedge Fund Indices are calculated from performance data supplied by a diversified group of over 1,000 hedge funds drawn from the database of more than 3,500 monitored by the Hennessee Group. The overall and strategy indices are calculated by an equally weighted average of the performance of the funds that make up each index, net of fees and unaudited.

All major hedge fund strategies experienced positive performance in November, with the exception of short-biased managers. Says E. Lee Hennessee, the firm's other managing principal: 'It continues to be a very difficult environment for short selling, and 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.'

The Hennessee Long/Short Equity Index grew by 2.09 per cent in November, making 10.62 per cent for the year to date, and the Arbitrage/Event Driven Index increased by 1.27 per cent in November and 10.41 per cent for the year. The Distressed Index posted a monthly gain of 1.75 per cent and 13.08 per cent so far in 2006, convertible arbitrage funds were up 0.81 per cent in November and by 10.48 per cent for the year, and Hennessee's Merger Arbitrage Index was up by 0.83 per cent and 10.81 per cent respectively.

The Global Macro Index advanced 1.94 per cent in November but just 7.64 per cent for the year to date, while the outperformance of US long/short equity funds by their global counterparts was reflected in a monthly rise of 3.02 for the Hennessee International Index, which is up 11.48 per cent in 2006. Macro funds rose by 1.46 per cent in November, but are up a bare 2.22 per cent for the year.