Macro hedge funds down at half-year point, pin recovery hopes on central
banks
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[June 30, 2023] By
Carolina Mandl and Nell Mackenzie
NEW YORK/LONDON (Reuters) - Many macro hedge funds that bet on global
economic trends are ending the first half of 2023 with losses, but
uncertainty around how different central banks will handle monetary
policy could provide trading opportunities for the rest of the year.
After a surprise crisis of regional U.S. banks roiled markets, those
funds were down by 2.3% this year through May according to the HFRI
Macro (Total) asset weighted index, which tracks performance of hedge
funds betting on macro trends. Investors said some individual
performances suggest it may be difficult for many funds to fully recover
by the end of June. That performance compares with a gain of roughly 13%
for the S&P and 0.1% for benchmark performance for hedge funds.
"The one weakest spot for hedge funds this year has been the macro
managers," said Jeffrey B Klein, a managing director at Goldman Sachs
External Investing Group, which invests in hedge funds. "For the rest of
the year, there could be a lot of opportunities in the macro space
because there'll be different economic policies followed in different
countries. Central banks may not follow as much of a coordinated policy
as they have over the last number of years with very low interest
rates."
Hedge funds that bet on stock performance were up year to date but on
average still underperformed the broader indexes, according to a Goldman
Sachs report.
While central banks around the world were in sync last year and for most
of this year raising rates to fight inflation, most recently monetary
policy has varied. The U.S. Federal Reserve decided to pause its hiking
strategy in its latest meeting, but the Bank of England surprised
investors last week with a rate hike above expectations and some
emerging countries like Brazil are already considering a rate cut.
This divergence gives portfolio managers more trading opportunities,
investors said.
"Last year, the market was largely driven by those macro overhangs, so
you had these long lasting positions, kind of short rates and long
dollar. It was the gift that keeps on giving it," said John Delano,
managing director at asset management firm Commonfund, which invests in
hedge funds.
Assets from different countries are more likely now to move in different
directions, he said. Currency moves are increasingly out of sync.
Some of the biggest macro hedge funds are Bridgewater Associates, Brevan
Howard and Moore Capital.
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A trader works on the trading floor at
the New York Stock Exchange (NYSE) in New York City, U.S., January
25, 2023. REUTERS/Andrew Kelly
Some of the money-losing funds rely on active managers instead of
algorithms for trading. Haidar Jupiter ended May down 44%; Brevan
Howard Alpha Strategies was down 1.99% and Rokos was down 5%. The
firms declined to comment on the matter.
Last year, with bets that interest rates would remain higher for
longer to tame inflation, macro portfolio managers had gained about
14% in the first half of the year and ended 2022 up about 9%,
according to HFR, outperforming the benchmark.
A regional banking crisis, however, caught portfolio managers off
guard in March, bruising their bearish rates positioning right after
Federal Reserve Chair Jerome Powell told lawmakers the central bank
might have to raise rates higher than expected to tame inflation.
Some hedge funds retrenched. London-based hedge fund Rokos Capital
Management decided to de-risk in March after it lost 15% with the
volatility in the bond market. In May it posted a 5% gain, but it
was still down 5% year to date.
POSITIVE PERFORMANCE
Contrary to the performance in macro hedge funds, long/short hedge
funds, which bet on rises and falls in global stocks, were up 5% as
of June 23, Goldman Sachs said in a note to clients. That still
underperformed the rise of about 10% in MSCI's broadest index of
global shares.
Hedge funds aggressively bet that stock prices of U.S. companies
would fall in June while remaining net bought on European markets,
said a separate note from Goldman Sachs sent the same day.
Delano said equity hedge fund managers have been more cautious in
terms of betting on a market direction in the first half of the
year. "You could call it a low conviction that this market rally was
going to continue," he said.
Investors expect long/short hedge funds to end the year on a
positive note, as the impact of an environment of higher rates is
going to impact companies in different ways.
Current market conditions have meant a big gap between the best and
worst performing stocks. This provides great opportunities for hedge
funds, said Bruno Schneller, a managing director at INVICO Asset
Management.
(Reporting by Carolina Mandl, in New York and Nell Mackenzie, in
London; Editing by David Gregorio)
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