Macro hedge funds’ profit and loss was driven by how strongly they were positioned in favor of taper in September. The near consensus among all analysts that Fed would curb its money-printing ways caused several Macro Funds to establish protective hedges. HFRX Macro/CTA Index was down 0.2% in September, and is down 2.7% for the year.
Omni Macro Fund, was down 0.8% in last month, trimming the return for the year down to -3.09%.
In the monthly commentary, the fund notes how unabashedly the Fed took a u-turn on limiting its asset-repurchase program. The monthly update critically points out how undaunting the Fed’s stance seemed in the September meeting, and how the meeting simply ignored all talk about unemployment thresholds and the poor effect QE has had on strengthening growth, all of which seemed grave concerns in past meetings that hinted on taper. The fund mocks the solution the Fed has found for slower growth,
“QE is failing to have the necessary impact, so what is prescribed? More QE. Although it sounds ridiculous there is no more succinct description of our current predicament.”
Omni is positioned on the short side of EUR
Omni is positioned on the short side of EUR against GBP. The fund talks about the telling signs in Norwegian economy, and how the pristine balance sheet of the country cannot offset the growing housing bubble. Given Norway’s problems and its popularity as a protective hedge, the fund has established a tactical short in EUR/NOK as shorts in the currency unwind and upward pressure on the currency increases. The fund expects the country to report rising inflation in this month.
TT is bearish on U.S recovery, bullish on Europe
TT International, another global macro fund, at the same time gained only 0.13% in September, taking up the YTD return to +2.37%. While Omni Macro is irked by the spinelessness of the Fed, TT International seems okay with it. However the government shutdown and a possible U.S. default would have a distinctly negative impact on Fed’s ability to decide on when to taper off asset purchase, says TT International. The differences between Democrats and Republicans have been building and in these circumstances it would have been unwise to taper off QE, when there is uncertainty ad to how much the stand-off in the Government would have affected growth.
That said, the fund is bearish on the prospects of recovery in the U.S. The added fiscal drag from sequester and tax hike in next year, bleak chances of corporates adding significantly to their workforce and expenditure, high levels of debt, and limited contribution of housing to real growth, will all contribute to slower growth in the U.S.
TT notes that the conditions in Europe are distinctly going towards improvement, previously troubled countries like Portugal, Greece and Italy have shown that they might have just avoided a collapse. TT predicts euro rising to 1.45 against USD, if growth in U.S. remains on the downside.
TT has several hedges in USTs
With regards to Japan, the fund remains cautious and has cut down its exposure to equities to half. The general view of TT is that Shinzo Abe has been slow in implementing economic reforms.
TT has several hedges in USTs, like short 2yr versus 10yr. In currencies, the fund is short USD/JPY and short GBP/USD. TT has longs in European and Japanese equities.