London Diversified Fund Management, once a high flyer among fixed income hedge funds with $5 billion under management, took a severe blow as the global financial crisis struck and the U.S. in particular was hit with a crisis in the housing market. LDFM’s London Select Fund is managed by David Gorton—the hedge fund has over $600 million and invests in liquid assets using a fixed income global macro strategy. London Select was up 2.05 percent in May, in addition to the +6 percent return it netted in April, and the fund is up 11.15 percent YTD.
LDFM Hedge Fund Currency Positions
London Select fund took profits in its shorts in Swiss Franc, which the fund increased based on a bullish outlook for USD as it strengthens in the fear of Fed Taper and further weakness coming from Swiss central bank’s cap on CHF’s appreciation. London Select has shorts in CHF against both USD and EUR. The fund also increased its short in yen through spot forex positions and added short in Australian dollar. The AUD is a very popular hedge fund short as we have detailed in the past. See the chart below from BAML for the latest hedge fund moves into (and out of) the AUD.
LDFM Rates Positions
In the rates market, the fund has increased short exposure in U.S. 10 year Treasuries after the Fed hinted on stemming its bond purchase program. The fund believes that yields would widen by 50-150bps in absence of QE. Gorton also reduced long exposure in European rates. The fund still likes government bonds in peripheral EU countries and emerging Eurozone economies. The fund has longs in Slovenian bills and 10 year bonds and in Hungarian short term bonds. GGBs also have a positive road ahead, an opinion that is not shared by the IMF.