When markets stabilized in July, most of the funds who lost ground in June and in the latter part of May were able to offset their losses. However Omni Macro Fund has continued to do just the opposite—the hedge fund experienced gains in months when most other macro funds are losing and vice versa. In July, Omni Macro was down 2.4%, trimming the year to date return to -4.4%. Omni was up 1.68% in June, again a positive gain in a period when the rest of the hedge fund industry broke its prolonged winning streak.
Omni managers say equities are the only game
The latest commentary from the fund managers remarks on how they have been fooled by the Federal Reserve and Bernanke. This of course refers to the confusing statements that were issued in the last three months over the Fed’s intentions of tapering off quantitative easing. Omni thinks that the central bank has made matters worse for itself by their scared reaction to the market turbulence seen in June. They say that, “If the Fed wishes to gently deflate a bubble now rather than being forced to burst it later, its recent communication has made its job significantly more difficult.”
Stephen Rosen and Nick Munns write that the economic events that have taken shape over the past two months have ensured that, “equities are now truly the only game in town.” As all other assets have been struggling to cut back what they lost in May-June, stocks are once again up and running high.
Omni gets burned in short euro and long silver
The fund got burned in its short EUR against USD trades in July, as the euro rallied against the backdrop of dovish and appeasing comments from the Fed which took USD lower. The fund had to pare back its position as the stoploss hit the mark. Despite the bipolar stance of the Fed, Omni believes that the September meeting will announce the start of a tapering process. In the portfolio managed by Stephen Rosen, the fund incurred losses in long silver trade when the metal continued to plunge despite of a weakening dollar. The total attribution to the fund’s performance was -0.25% from this trade.
The fund also booked profits from a long AUD/USD tactical trade which was exited in July with a modest return. The long AUD call was based more on crowded short positioning in the Aussie which was signalling a reversal, however a stronger rally the fund was expecting did not materialize. The fund was also down in its short US-10 year notes position, as the yields stabilized and did not worsen their decline.
GDP, inflation and UK central bank
The managers comment on signs of growth in the U.K. economy as fundamentals are improving and surveys are showing increased consumer confidence. They note that U.K.’s official GDP forecast could be revised to give a more positive outlook. Rosen and Munn reiterated that markets are fixated on the U.K. central bank and have been ignoring the consistent improvement in data. This has resulted in a bearish outlook for GBP which is not directly supported by fundamentals. They also point out that the U.K. economy and its concerns are not similar to the rest of the developed world. Britain has maintained a higher average inflation in the past five years than any other country, therefore the central bank has less flexibility when it comes to issuing a dovish stance.
The fund has short EUR/GBP and short GBP positions.