All the volatility and market turmoil shook the returns of Pharo Macro Fund, down 2.1% in last month. The global macro hedge fund strategy is up 7.6% for the year. Last month the fund was up 2.3% with gains from shorts in U.S. treasuries and longs in Greek government bonds.
Like all other macro hedge funds, Pharo Macro has short term investors to blame for its losses in the past month. Pharo Macro has kept up an uneven stream of returns throughout the year so far, posting as much as +4% return in January and April and then detracting at most other times.
Pharo Macro comments on U.S. vs EM growth rates
In their monthly commentary, the fund comments on the lack of coordination between ‘growth’ in U.S and the emerging markets. While the U.S is showing some form of mixed recovery, emerging economies like Mexico, Russia, Korea, India and Colombia have been struggling with a negative growth outlook for several months now. The gap in growth prospects alludes to a clear shift in the perception of EMs having growth rates that are multiples of developed nations. This is exemplified by Mexico, Korea, South Africa posting similar GDP growth in Q1, if not lesser than the U.S., which managed 1.6% GDP growth year over year.
Pharo talks about one of the few emerging economies, Turkey, that was able to post better growth in Q1 at 3%. Now with the recent political instability in the country, lira is poised to take more losses. Turkey, which is currently stuck with one of the largest current account deficits among all EMs, is looking to increase interest rates going further to curb its losses. The EM universe was shaken by a blanket sell off in fixed income assets, wiping out $12.3 billion from fixed income funds after redemptions. Emerging markets, most notably Brazil and Turkey, liquidated their reserves to safeguard their currencies against losses.
Pharo Macro profit and loss in June
The Pharo Macro fund was almost flat overall in its interest rate positions. The fund took profits by shorting U.S. treasuries, one of its largest contributors for the month. The largest loser was long position in Brazilian rates.
Other losing positions were long GGBs, Spanish bonds and Italian bonds, long US HY index, long Hungarian rates and shorts in CHF. Almost all other macro funds have been burned by losing positions in European debt in the past month. Pharo Macro was up in short Mexican rates, short Korean rates and shorts in MXN, RUB and TRY.
The fund has $2 billion in assets and has the highest exposure in interest rates.