Yen Hedge funds

These days in currency trades the question is not who is shorting yen, it is more like who is not shorting yen. We have no answer to that, because in all our readings of market reports and hedge fund letters, we have not found one thesis that says that investing in the Japanese yen will not be profitable from a risk-reward perspective in the near term ; shorting yen is like a universal truth in the investing world for now at least.

WSJ posted an interesting read last week which enumerates several big hedge funds that have put a profitable bet on the fall of yen which has declined by more than 20 percent in the past six months. We posted our analysis of how short yen is becoming increasingly crowded a lot earlier than that and concluded that this has outpaced the long Apple Inc. (NASDAQ:AAPL) trade by a fair margin. Our thesis turned out to be more right than we expected, a load of large hedge funds pared bets in Apple Inc. (NASDAQ:AAPL).

Among the noted investors, David Einhorn of Greenlight Capital and David Tepper of Applaoosa Management appears to be the only ones who added significantly to their Apple holdings in Q4. Greenlight bought 275,000 Call options as well as 216,116 direct shares in the company, bringing his total stake close to 1.6 million in options and shares. Those who sold entire stakes were, Third Point, Tiger Global, Lone Pine Capital, Viking Global, Eton Park, Jana Partners, Omega Advisors, Tiger Consumer, Passport Capital and several others. This massive selling has been attributed to be one major reason that caused the loss in share price of the company after it highs of $700. According to most recent 13f filers, exposure was reduced by more than 5 percent in Q4 across the 1761 filers followed by WhaleWisdom.

At the same time everybody made profits from betting on the tumbling yen. George Soros, the famed currency investor has reportedly made $1 billion from shorting the yen. David Einhorn of Greenlight Capital began to profit from his long-held short position in the Japanese Yen after Prime Minister Shinzo Abe rolled in his plan of unlimited monetary easing. Greenlight Capital has returned 2.8 percent through January.

Brigewater Associates recently reversed its long thesis on Japanese Yen and joined in on the shorting spree. Dan Loeb’s Third Point has also gained from betting on the declining yen, Third Point Ultra is up 7.7 percent till Feb. 8 while Third Point Offshore is up 5.4 percent in the same period.

Moreover all these profits from currency trades also bode well for the Global Macro strategy which was down 1 percent last year when Event Driven and Distressed Credit strategies which returned more than 8 percent on average in last year while Macro was up in the range of 1 percent only.

The macro strategy is up 0.61 percent for the current year so far. Popular Macro funds like Discovery Capital’s Discovery Global has gained a whopping 8 percent in just January, Fortress Macro is up 3.7 percent as of the first week of February  while Caxton Global has gained 3.8 percent in the same period.

Paul Tudor’s Macro focused funds have gained more than 4 percent YTD. A smaller fund the we know has a short position in Japanese yen, Rubicon Fund Management’s Rubicon Global is up 8 percent for the year till Feb 8th. Pharo Macro Fund, another one with a short yen bet, was up 5 percent in January, same goes for TT International up 3.4 percent, one more among the shortsellers of the Japanese Yen.

Other than the above mentioned hedge fund big wigs, several smaller funds have also profited from betting on the fall of yen. The trend of selling in yen has been stronger than ever. Bank of America Merrill Lynch’s analysis noted that the negative position in yen is the largest in its dataset. However as hedge funds keep up the selling and shorting yen saga, public official/accounts buy yen which poses a short-term risk to the weakeing of yen.

Hedge Funds Selling JPY

Meanwhile, hedge funds cover their short bets in JPY as they recognize gains from the trade. Further weakening in yen is expected in future as the new governor for Bank of Japan is appointed towards the end of next month, so the short bets are expected to pile up once again.

Short Japanese Yen JPY