Fortress Investment Group has done well in its Asian strategy, and the Fortress Asia Macro fund is up 12.8% through the first half of this year after adding a 0.8% return in last month, according to HSBC Hedge Weekly. Staying up in a period when most Asian emerging markets took a turn for the worse is impressive, and the fund was also up a brilliant 4.4% in May.

Fortress

The flagship Fortress Macro Fund Ltd is also up 13% in the first half of the year, but was down 0.5% in June.

Fortress Asia up in forex trades, scales back short JPY

ValueWalk obtained Fortress Asia’s May letter, in which portfolio manager Adam Levinson talks about investments that worked well for the fund. It looks like the best bets of Fortress were its investments in the forex market where USD won against all others, and the fund was up in its short Singaporean dollar positions against USD.

Interestingly, Fortress scaled back its exposure in short JPY positions in May when the yen depreciated to 102-105 against the dollar. This was a pretty smart move considering that the forex market became extremely volatile after that. Levinson covered the shorts at Y102, as the fund understood that further weakening beyond Y105 would be driven by recovery in the U.S. and not by the Japanese reflation theme. The fund plans to enter these positions again as it sees more signs of fundamental weakness. In the fund’s tactical short term portfolio, short AUD and CAD did well while shorts in NZD and INR detracted.

In May, Fortress Asia remained a net gainer in the fixed income basket. The fund was up in its paid rate positions after Bernanke hinted towards taper in his testimony to Congress and also gained in Japanese paid rates. In emerging markets, Fortress was profitable in its positions in paid interest rates of Singaporean dollar, Hong Kong dollar and South Korean won. The fund however detracted in Indian bonds and European rate positions.

Fortress on Alibaba.com

In commodities, Fortress took profits mainly from shorts in base metals and most notably from copper.  In the equity book, the fund was up in Chinese investments, a unique theme as most other macro funds are piling up short exposure in China. Fortess is hedging its longs in Chinese growth stocks against property, commodity companies and Hong Kong equity indices.

Levinson says that Alibaba.com Limited (HKG:1688)’s IPO is the most important event in the Chinese stock market in the coming months, and the fund expects the Chinese e-commerce giant to finalize more partnerships as it gets closer to IPO. Other areas that Fortress is focusing on are the benefits from rising urbanization and improvement in quality of life in the Chinese society which will help drive up consumption. Levinson thinks that in the coming months, China will rapidly adopt 3G phones which will benefit companies that produce relevant hardware. Fortress is likely bullish on semiconductor companies that make memory chips for these devices.

 In Japan, Fortress gained from longs in telecom companies. The fund is expecting further volatility in Japanese market which will hamper returns in the short term but overall Fortress is positive about the long term outlook in Japan.