Tiger cub Argonaut Capital recovered in March with a 1.4 percent return, bringing the Q1 returns to 4.3 percent. Argonaut lagged in February due to a rally in yen and decline in euro, however in the next month these factors reversed and the hedge fund gained moderately in all of its macro and equity positions. Last month Argonaut added a short in Hungarian Forint which was profitable in March, additionally the fund  also gained from a timely short in gold futures. However the larger gains of the fund came from Japanese long equity positions and short yen trades.

argonaut capital's David Gerstenhaber
David Gerstenhaber of Argonaut Capital

Argonaut Capital Shorting Yen and gold

Most hedge funds are simply excited about the attractive opportunities arising in Japan and others are bearish about Japan’s way of restructuring itself, most notably George Soros and Kyle Bass.  David Gerstenhaber of Argonaut Capital has taken a firm stance in favor of Abe’s fiscal policy, which he sees as a well-structured course for the country to steer itself away from the consistent cycle of deflation. He thinks that the Fed’s QE and Abe’s monetary easing cannot be put in the same basket as both policies have been initiated to achieve different goals, the former targeted unemployment while the latter is aimed at crushing deflation. Shinzo Abe has chosen to fast track Japan’s trip to inflation and has been delivering on that promise.

Gerstenhaber does not expect further rounds of easing to be as aggressive as the first one. Some of the real signs of improvement in Japan have been an increase in bank lending and a rise in inflation expectations, Gerstenhaber argues. As Abe is aiming for a win in the July elections in upper house, there is further expectation that this quarter will have more stimulants to drive growth.

Gerstenhaber also thinks that the rest of the year will see Japan’s domestic funds moving their capital to diverse investment opportunities. The bulk of pension fund assets in Japan are invested in sovereign bonds – as the economy stabilizes, these conservative investors will move to equities and foreign fixed income assets. The next round of growth in Japan will be primarily driven by inflows from the domestic investors rather than the external investments.

Argonaut’s other profits came from longs in U.S. equities and interest rates and European sovereign debt positions. Smaller losses were incurred in Brazilian bonds and real estate, and Argonaut has now lost on this theme through Feb and March. The fund lost in other currency positions as well.