Argonaut Capital is among the strong believers of Japan’s easing program, and the fund has bullish positions in equities and shorts in JPY through the past few quarters. Consequently the Argonaut Global Macro Fund was hurt in June as both major trades reversed. The fund declined 2.4% in June and is up 4.7% for the year so far.
David Gerstenhaber, founder of Argonaut and former Tiger cub, has maintained a short in gold for the past few months, which was among the few positions that performed well in tghe last month. Other than that, the fund lost in both U.S and European equities, long positions in U.S yields and from shorts in CHF and CAD.
Argonaut’s performance in first half of 2013
Argonaut Capital is the second macro fund to exit positions in peripheral European bonds—earlier we updated that TT International Fund has also wrapped up its long exposure in the region. Overall during the first half of the year, the fund profited from longs in U.S. equities, shorts in gold holdings and longs in Chinese equities. Argonaut has lost in currency and fixed income positions in Brazil and also from positions in rates of New Zealand and Australia.
Market outlook for second half
In its investor letter, Gerstenhaber writes that two major developments took place in the past month and have changed the perspective of markets—the assertion by Fed that an end to QE is in the cards, and the shift in Chinese government. The new Chinese regime is more concerned with stability rather than growth and has policies distinct from its predecessors. Argonaut’s global macro fund is positioned to benefit from these developments once markets have absorbed their initial knee-jerk reaction.
However in Argonaut’s view, the economic picture does not look rosy. The fund has taken a short position in 30-year Treasuries, and it expects that yields will rise further as the Fed keeps on hinting towards ending the fiscal stimulus. Argonaut is convinced that economic data will not improve briskly, so it has established other positions in the yield curve which will benefit from slow economic growth. On the same theory, the fund is long S&P 500 (.INX) and Russell indices, and as we have seen in past weeks, low growth numbers were liked by stock markets so the fund stands to benefit from it.
Like so many other macro funds, Argonaut is also bullish on USD against the EUR and JPY. Except for shorts in CAD and CHF, the fund also has shorts in AUD which have done well. Argonaut also has longs in Topix index and thinks that the impact of Abenomics is not priced into the economy yet. In Europe the fund expects further downward pressure on interest rates and the euro.