Pharo Macro Fund, AUM $1.8 billion, fared better than several of its peers with a 2.38 percent return in May, bringing the year to date performance to +9.98 percent. Pharo has the largest exposure in global interest rates and forex market with positions in both the emerging and developed economies.
Investors Rushed To Sell Their Assets
May marked the beginning of the shaky period for financial markets and Pharo suffered in its interest rates and forex holdings in EMs which took a beating as investors rushed to sell their assets. The same dynamic helped the fund to net gains in its short positions in US treasuries and from bearish positions in emerging market currencies. Among others, Pharo Macro gained from well placed shorts in Mexican peso which gave back all of its gains for the year in May. Pharo also gained from shorts in Chilean peso, Brazilian real, Korean won, Malaysian ringgit and the Russian ruble.
Pharo Macro’s longstanding position in Greek government bonds
One of the fund’s largest positive performers in May was a curve steepener trade against 2-year and 10-year yields in South African bonds, at the same time the fund also netted gains from the decline of South African rand. Pharo Macro’s longstanding position in Greek government bonds turned profitable once again as factors like a debt upgrade from Moody’s, an increase in manufacturing PMI and approval of bailout funds induced a rally in GGB yields.
Moving onto losses, the hedge fund was down in its long positions in Brazilian interest rates, where the central bank rose policy rate by over 50 bps. Pharo Macro was not expecting a strict stance from the central bank despite of the weak growth fundamentals in Brazil. However the fund was up in short Brazilian real positions, and should be profiting further as real is still stuck on the downward road.
The fund lost across the board in its sovereign bond positions in emerging markets, detracting in Russian, Chilean, Mexican and Turkish bonds.