One of the few large and growing credit focused hedge funds, BlueCrest Capital, returned 0.27 percent in April according to a shareholder letter obtained by ValueWalk. While this may seem a very weak return when compared to L/S equity and event driven strategy, for a credit hedge fund it is not as bad. BlueCrest Capital Limited has $12.2 billion under management and is up 0.49 percent YTD.  Other than the flagship fund, BlueCrest MultiStrategy Credit Fund is up 4.75 percent through April while BlueCrest Emerging Markets Fund is up 2.7 percent in the same period.

BlueCrest Capital Benefits From Volatile Markets in Japan and Europe

BlueCrest Capital Cashing Into The Volatility Boom

In Japan, the hedge fund expects yield to rise eventually and is positioned accordingly. BlueCrest Capital expected increased volatility going forward that will help with its relative value strategies, it got that wish as Japan’s volatility index broke records in the later part of May. BlueCrest has longs in JPY rates volatility which were profitable in April, however the immediate sell off in JGB’s after BoJ’s landmark announcement detracted the fund’s gains partially.

The fund has short bias towards European sovereign debt which lost as the bond market rallied. BlueCrest Capital took profits on its directional positions in short term rates, the fund also took gains in relative value trades of EUR, USD while losing in long rate volatility positions in EUR and GBP.

BlueCrest on Much Needed Market Correction Or Actual Growth

Like several other hedge funds, BlueCrest Capital is not impressed by the optimism of equity markets when economic fundamentals are not improving in accordance. The investors have been dismissing bad news on hopes of unlimited monetary easing which will be there to cushion all economic downturns. BlueCrest Capital does not think that further stimulus in EU in the form of lower interest rates will have any great impact, and the fund is disappointed with the unnecessary attention to artificial easing and the  almost non-existent attention on reducing debt and building better infrastructure.

This commentary is especially appropriate  in light of the developments of the last few days. The US revised down GDP estimates for Q1 and later manufacturing data unexpectedly fell to a multi-year low in May, the well practiced stock markets shook slightly for one day but were back up the next.

With respect to BlueCrest Capital’s positioning, in the event of a market correction, the fund has longs in rates and volatility. However if the sentiment and confidence of investors and central banks remains unshaken, and economy does improve, the subsequent bond sell off will also benefit BlueCrest Capital’s volatility positions, so it is a win-win in either case.