New York: In 2017, macro hedge funds were expected to shine. So far? Not so much.
It’s been a far from impressive first two months for funds that trade around macroeconomic events. Discretionary funds rose just 0.3 per cent through February, according to Hedge Fund Research Inc., while the average hedge fund rose 2.2 per cent and the MSCI World Index gained 5 per cent. Some did far worse than global stocks, as the chart below shows.
“The perception was that once Trump got elected, there would be a more hawkish tone to the Fed,” Darren Wolf, head of hedge funds for the Americas at Aberdeen Asset Management, said in an interview. “That divergence in global policy between what the US is doing and what the rest of the world is doing is normally a favourable macro backdrop.”
It hasn’t turned out that way, hedge fund managers say, in part because this change has been slight thus far. Markets have been driven higher by policy proposals rather than hard-won reforms on issues including taxes and trade. At the same time, managers have been trying to capture the US stock market’s post-election exuberance while exercising caution.
Japanese reflation
Some macro funds have been drubbed by bets against US bonds, which started rising in late February. What’s more, foreign exchange “hasn’t been kind to macro,” said Robert Savage, head of research for Track.com, which publishes a daily newsletter for money managers, and the former chief strategist of hedge fund FX Concepts. “Most are still long the US dollar but don’t have much to show for it.”
Macro funds took losses with the Japanese reflation trade — long Japanese stocks and short the yen. “It’s the exact same idea — they made a lot of money on this trade in the fourth quarter and gave it back in early 2017,” Wolf said.
And, managers have been adding to defensive positions, turning net short US equity markets on an aggregate basis, according to a March report from Credit Suisse’s prime services division.
Yet many managers have confidence that an inflection point is coming that will buoy macro performance.
“We appear to be entering a time when governments are pitting themselves against each other and their own central banks,” Crispin Odey’s Odey Asset Management said in an investor letter to clients recapping January performance. “Oddly, this makes life easier.”
Macro faith
Clients are buying Odey’s logic. According to a Deutsche Bank AG survey published Wednesday, 27 per cent of allocators said they intended to add money to macro strategies. Global macro funds managed by humans topped a ranking of strategies demanded by investors polled by Credit Suisse last month.
Still, not all macro funds are having to play catch-up with markets. Autonomy Capital, the $4 billion hedge fund firm led by Robert Gibbins, has gained almost 9 per cent through March 3, according to a person with knowledge of the matter.
“Equities are at highs, interest rates are still at cyclical lows, and there aren’t really too many strategies that will do OK if equities sell off, interest rates rise and currencies shift,” said Wolf.
