Macro hedge funds posted a wide range of returns in the first half of the year, with several strategies up by double-digit rates and others in the red or up by low single digits.
A big factor in performance was the funds’ positioning for interest rates. Managers that expected the Federal Reserve to begin reducing interest rates were hurt when the central bank failed to lower targets because of stubborn inflation levels, particularly in the second quarter.
Meanwhile, the bond market has generally been more volatile over the past 18 months than during the previous ten years. Graham Capital Management’s Ken Tropin pointed out that from 2010 to 2021 three global central banks instituted a total of just 13 rate changes of 25 basis points each. In the past 18 months, the same banks have made 60 rate changes of 25 basis points each, sharply increasing the opportunity set for macro managers. “It is more constructive for macro when rates are moving a lot,” Tropin stressed in a recent phone interview. “It also has a knock-on effect on equities and foreign exchange.”
One of the top performers in the first half was Robert Citrone’s Discovery Capital Management, which was up 21.7 percent despite losing 1.2 percent in June. It rose 4.1 percent in the second quarter, according to the firm’s June monthly report, obtained by Institutional Investor. All asset classes contributed to increases in the first half, led by long exposure to sovereign debt and long and short equity positions, the report said. “Thematically, gains were driven by our EM macro exposure led by long exposure in LATAM [Latin America], India, and shorts in our China theme driven by currency shorts,” Citrone stated.
Altogether, Latin America accounted for roughly two-thirds of the fund’s climb during the six-month period. On the fundamental side, Discovery noted that gains were driven by short positions in financials and long positions in technology, media, and telecom, or TMT.
Elsewhere, Chris Rokos’s Rokos Capital Management was flat for the second straight month but remains up 20 percent for the year, according to someone who saw the results. Bridgewater Associates’ Pure Alpha fund rose 14.25 percent in the first half, says a person who viewed the results.
At Graham Capital Management, Graham Quant Macro fund, its largest quantitative offering, was up 1.04 percent in June and 12.5 percent for the year, revealed someone who saw the results. Returns were driven primarily by stocks, foreign exchange, and energy, according to the source.
Graham Absolute Return, the firm’s largest discretionary fund, was up 7.51 percent for the year after gaining 0.41 percent in June. The fund was helped by equities, long- and intermediate-term interest rates, foreign exchange, and credit, the source said.
The firm’s Proprietary Matrix fund, which is half quant and half discretionary, was up 11.03 percent in first-half 2024 after gaining 0.35 percent in June. It was driven by equities, rates, foreign exchange, and credit, the source added.
Looking forward, Graham. Capital’s favorite trade is a yield curve steepener, a bet that yields will decline on the short end at the same time that long rates either don’t go down or go even higher. The result will be a wider spread.
Other macro funds have not fared nearly as well.
Greg Coffey’s Kirkoswald Capital Partners was flat in June and up just 2 percent in the first half, according to two sources. Paul Tudor Jones II’s Tudor BVI Global Fund lost 80 basis points in June and finished the first half down 50 basis points, two sources said. Brevan Howard’s BH Macro fund was down 1.53 percent for the first half despite gaining 0.89 percent in June, according to the fund’s weekly report, seen by II. Losses were driven primarily by rates; digital assets were the best performer.
The biggest loser in the macro world was the Haidar Jupiter Fund, which dropped a further 3.2 percent in June, bringing its decline for the half of the year to 20.23 percent. Haidar’s losses also were primarily driven by rates.
“With U.S. economic data continuing to moderate, the likelihood that the Fed will cut interest rates in September appears to be rising,” Haidar predicted in its May monthly report. Heading into June, fixed income accounted for 32 percent of the fund’s exposure, equities 30 percent, and commodities 26 percent, according to the report.