If you are investing in Japan, there is one theme; short the currency and go long on Nikkei index. This is exactly what North Asset Management’s MaxQ hedge fund is doing. MaxQ bagged another +1.62 percent in returns in the month of November 2012, finishing the eleven months with +14.66 percent, net of fees.
Like the consensus opinion, MaxQ’s managers also believe that fundamentals and politics are going hand in hand to weaken yen. The external factor that goes in favor of yen is the clear indicator that growth in US will outperform that in Japan, and will therefore result in a strengthening of USD against JPY. The headwinds to this much wanted depreciation in JPY would be a weaker global growth cycle, which could boost the yen against other currencies. Moreover fiscal stimulus from central banks of US and eurozone could weaken USD, pitching the odds in favor of the yen again. Other than shorting JPY/USD, MaxQ is also looking to go long on Asia ex-Japan currencies against JPY as well.
The fund profited in emerging markets and Europe in risky assets, it expects the gains to keep trickling in for EMs, going forward into 2013. However the strategy is more careful towards the eurozone with investments primarily focused in assets that will benefit once Spanish sovereign bonds are bought by ECB. The fund judges the OMT program, the key development in ECB’s monetary easing program, as prone to risks and incapable of warding off Europe’s bigger problems of slow growth. Future prospects look bleak for euro countries, with rising dissension among governments. Therefore MaxQ is sticking to short term investments for now.
The market in the UK also looks weak in 2013 and a new round of fiscal easing can be expected once the regime at the central bank changes. In Sweden, the Krona is expected to decline in general and specifically against the Norwegian Krone. The fund is also shorting the Czech Koruna against the Euro. In US, the main position is long fixed income futures against swaps and shorts in some large cap stocks.
Like last month, the fund was unable to filly juice shorts in South African government bonds versus longs in CDS, however the fund is sticking to the position and expects the indicators to unravel in its favor.