argonaut capital's David Gerstenhaber
David Gerstenhaber of Argonaut Capital

Most hedge funds have been having a good year. Equity Long/Short strategy has been particularly profitable, so has Event Driven. As for the Macro strategy, the performance has stayed mixed. February was a tough month, primarily due to the decline in euro and rise in yen after the surprising result from Italian elections surfaced. One example is Argonaut Capital’s Global Macro fund which was down 1.2 percent in February. This takes the two month returns to +3.1 percent, Argonaut had a profitable January.

David Gerstenhaber’s  Argonaut Capital lost across most of its interest rate positions in US and Brazil. The hedge fund was also down in yen short due to the brief rally in the currency witnessed  in February after Italian elections. The hedge fund also suffered losses in its European debt positions at the same time, however they were less than what it lost from yen shorts.

A notable point is Argonaut’s gains in short Gold positions which were closed profitably, however the profits were not able to offset losses in other major positions. The short yen position is one among the largest of Argonaut’s allocations, the long position in S&P 500 (.INX) index futures is also a major position.

Since the depreciation of the yen is going to end at some point, possibly in the next few months, Argonaut Capital is shifting its focus to Japanese assets which it believes will rally for an extended period of time. In the case of Argonaut’s position in Italian debt, the managers are convinced that chances of Italy defaulting or facing a dire budgeting crisis is far less than countries like Greece and Spain.

However, Argonaut added a position in nine month Italian bonds, as it sees no chance of default in 2013. The fund managers are not surprised by how the elections in Italy turned out, they are more surprised at how the markets reacted to it.

They believe that the problems of Italy are less severe than the rest of the Europe as country is in less need of debt financing than Spain and France. There is also very little chance that the economic policies of the country will change despite of the backlash against austerity measures. The position in Portuguese debt will also gain in the long term as the country shows strict adherence to ECB’s fiscal tutoring. Argonaut Capital added a short position in Hungarian Forint.