These macro funds are winning big in August as volatility surges

New York

SEVERAL macro hedge funds are on track for a banner month in August as fears of slowing global growth and protracted trade tensions sparked a long-awaited resurgence of volatility in currency and credit markets.

Hedge funds from New York's Haidar Capital Management to Hong Kong-based Counterpoint's Asian macro fund have posted hefty returns in August as haven assets such as gold, the yen and Swiss franc rallied, and China's yuan weakened.

Said Haidar's US$650 million fund advanced about 11.6 per cent through Aug 21, according to a person with knowledge of the matter. Crescat Capital's macro fund surged 16.6 per cent through Aug 23; the US$335 million PruLev Global Macro Fund was up 11 per cent through Aug 16; and Counterpoint is up just over 4 per cent after fees, manager Geoff Barker said early last week.

The firms' returns for the month have outstripped some of their macro peers as funds such as Autonomy Capital and VR Capital Group suffered losses on the swoon in Argentine markets. They are also beating Hedge Fund Research's HFRX Macro/CTA Index, which was up 0.5 per cent this month through Aug 23 and measures macro hedge funds and so-called commodity-trading advisers.

Still, the gains may have come too late for some investors. Around US$12.8 billion was pulled from macro funds in the first seven months of this year, according to eVestment, as investors who had poured US$14 billion into the strategy the previous two years grew disillusioned amid sub-par returns.

While some veterans such as Paul Tudor Jones and Alan Howard bounced back last year as worsening trade tensions, political turmoil and rising interest rates roiled markets, macro funds as a group failed to stand out.

About 44 per cent of allocators said discretionary macro, which relies on human judgment to spot trading opportunities, disappointed in 2018, according to a Deutsche Bank AG survey released in March.

Macro funds trailed average returns of all hedge-fund strategies in 2016 and 2017, posted a loss last year and just kept pace with rivals in the first seven months of 2019, according to indexes compiled by Eurekahedge Pte.

Then came August. The US yield curve inverted as 10-year rates dropped below two-year yields - a strong indicator in the past of a looming recession.

Investors who have lost faith in the ability of easier monetary policy to boost growth and inflation turned to safe assets such the Japanese yen, Swiss franc and gold, which surged 8 per cent in two weeks, reaching a six-year high on Aug 15.

As long as funds avoided this month's wipeout in Argentina, they probably did quite well, according to Rob Christian, co-head of investment research and management at K2 Advisors in Stamford, Connecticut.

"If you had emerging markets or Argentina, you are probably down on the month; and then most other managers have made money on interest rates in general, or some theme around that," he said.

"We think it will continue to be a fertile environment for macro. And we think the geopolitical pressures will continue to remain high."

Haidar Capital profited from trades on developed market fixed-income and has been bullish on gold and currencies like the Swiss franc, according to Said Haidar, the firm's founder and chief investment officer. Both Haidar and Counterpoint have been bullish on the yen.

The yuan earlier this month fell to its weakest in 11 years after the central bank set the daily fixing above 7 to the US dollar. While PruLev doesn't have a position in the Chinese currency, it benefited from the US bond rally as the global economic outlook deteriorated, and fears heightened of China using the yuan as a weapon in its escalating trade war with the US.

Returns were also boosted by the Reserve Bank of New Zealand's bigger-than-expected half-point interest rate cut, PruLev portfolio manager August Li said.

Crescat and Counterpoint saw bearish bets on the yuan pay off. Crescat has held that position since late 2014, convinced China's credit bubble will burst and force a currency devaluation, founder Kevin Smith said.

"We haven't seen anything compared to what we're expecting in terms of devaluation," Mr Smith said in an interview. "When you look at emerging market countries that have had banking and currency crises, a 40 per cent to 50 per cent type of decline is not out of the question." BLOOMBERG