Hugh Hendry, in the latest performance letter of Eclectica Fund, accepts that the much awaited resurgence in U.S. economic growth has not materialized in its full spirit yet. The weak output shown in global manufacturing data shows that the cyclical sell off in Europe, emerging markets and economies dependent on China will continue to bog down growth in the U.S., for at least a longer period than previously anticipated by most.
The global macro strategy fund Eclectica detracted 0.2 percent in April, bringing the YTD performance to +3.4 percent. The fund underperfomed on its major long position in the US dollar, which ended up nullifying a positive performance in Japanese equities and tobacco companies.
Hendry Long Thesis on Japanese Equities and the Short in Yen
Hendry also shares his long thesis on Japanese equities and the short in yen and was optimistic about more gains in that area. Hendry notes that an ever weakening yen is taking its toll on other Asian countries, like Korea and Taiwan. Both countries are struggling with an unwanted strengthening in their respective currencies which has led to their central banks issuing rate cuts. Hendry calls it a battle between BoJ and Asian central banks. The rate cuts in Korea and Taiwan produced profits for Eclectica in its respective rates and equity short positions.
Hendry observes in the latest performance letter that Australia seems to be the most acutely affected by China’s contracting imports. The commentary notes that Australian PMI data detracted for the seventh straight month. We have noted the troubling scenario that has struck Australia and the rising number of shorts in AUD from all around as a testament to the bearish future of the country. Hendry’s fund added 30 bps to returns due to the recent rate cut by Reserve Bank of Australia and expects to add more from further cuts. Additionally, Hendy’s second largest allocation regionally is Australia.
To save itself from a cyclical slowdown in equity markets, Eclectica has chosen to go long in equities that are not affected seasonally. The fund has longs in consumer staples. Despite unimpressive global growth, Hendry is happy with the relative stability that the U.S. has shown, which is the cornerstone of his long thesis on USD.