Mount Lucas Macro Peak fund delivered an estimated 0.19% return in February after a -4.07% loss in January as the quant portion of the program bounced back but the discretionary strategy component found difficulty, according to an investor letter reviewed by ValueWalk.

Equity positions positive, rates neutral, FX & commodities lower

Mt Lucas Fund

Mount Lucas manages $1.4 billion in total funds across three strategies.  In the Macro Peak fund, equity positions were profitable in February, fixed income was flat, and foreign exchange and commodity trades were down.  During the month of February the S&P was up 4.57 percent; the ten year note started the month at 2.59 percent yield and ended near 2.68 percent; the Dow Jones-UBS Commodity Index started at 126 and ended at 134, a rise of nearly 6% on the month.

The hedge fund has what it terms a “pro-US growth tilt” in the portfolio and noted that difficult winter weather had added uncertainty to this view.  Going forward the fund has not changed this pro-US growth tilt and believes the interest rate curve has very little premium devoted towards unexpected growth.

“No way” of handicapping Ukraine

Considering Ukraine, the letter was candid.  “We have no way of handicapping how this works out,” the letter said. “I am fascinated by expert assessment of ‘probabilities’ and a lack of understanding about what the word means.  For example, which is the probability of Russia invading Ukraine?

Noting that world events are not binary, with yes or no answers, the hedge fund says “The truth is that probability is the continuum that unfolds from repeated trials of the same process, any single selection is binary, yes or no.  All geopolitical events are different, thus inherently binary nature.  One is forced to control risk when faced with such binary outcomes, which we do in the discretionary portfolio.  That’s one of the reasons our systematic portfolio has recently outperformed our discretionary portfolio, as the big risk driver, the equity market, has motored through all incidents to date.”