Most large macro funds slid in June, it seems the smaller ones did not do any better. TT International Fund lost 1.1 percent in the last month, taking year to date performance to +4.8 percent. TT International’s returns for the first half of the year are good considering the fact that most macro funds are not doing so well.
Other similar sized funds that follow the global macro strategy did not do any better in June. The $1.5 billion Fortress Macro Fund Ltd was down 0.58 percent, Comac Global Macro Fund was down 0.97 percent in the same period, whereas Pharo Macro lost 2.6 percent through June 21. However, there are others like Tudor BVI Global, Rubicon Global and MLM Macro who managed to stay up in June.
Unsurprisingly, TT International’s shorts worked well in June, however the returns were not enough to offset the losses from rising bond yields and plummeting stock markets. The fund took profits in shorts positions in Italian banks, pharma, chemicals, utilities, miners and industrial cyclicals, short in 10yr US notes, GBP/USD, and short in index futures of Eurostoxx 50, Germany’s DAX index and FTSE were up in June. The returns from a positive short book were negated by detracting longs in European equities, Chinese yuan lost at the same time. TT has been profiting from shorts in Nikkei and Topix indices, a theme that reversed in June.
TT International’s outlook for global macro strategy
TT International notes that the Fed is in a position to taper off and the longer it delays that, the risks of inflation rise. While yields in the US took a bad turn after the Fed repeated its intention to scale back fiscal stimulus, EU and ECB took a more comfortable approach and reiterated their commitment to more stimulus which led to a rally in European rates. The fund expects further weakness in GBP and euro. The European currency is expected to decline both due to ECB’s assurance of further stimulus and from the possibility of emerging markets selling their euro reserves.
The fund calls the combo of tighter fiscal policy in US and China and slowdown in BRICs, a toxic combination. Rising interest rates could take their toll on peripheral European countries with high debt, like Portugal. Others at risk are those with large current account deficits and heavy portfolio inflows like Brazil, Mexico, Turkey, Hungary and Ukraine.
The fund is convinced that one or the other will crash, it is unclear as to when that will happen. TT International expects Japan to outperform with a weakening yen, France could also do well if reformists of EU win. In TT’s analysis UK exporters are also poised to net gains in the present global economic situation.
TT International has closed its positions in peripheral European debt, a major portfolio mover in the past months. The fund added shorts in EM currencies, Mexican peso, South African rand, Indian rupee and Turkish lira against the USD. TT is also short euro and pound sterling.