John Hancock currency fund sheds 8.7pc
SINGAPORE: The market turmoil sparked by the Swiss franc's record surge has turned the $1.9 billion John Hancock Absolute Return Currency Fund into the biggest loser among U.S. peers.
The fund tumbled 8.7 percent yesterday, the steepest drop on record and the most among more than 2,000 U.S.domiciled funds tracked by Bloomberg with at least $1 billion under management. The strategy is run by First Quadrant, a $19 billion investment firm that also manages hedge funds. The fund had its second-biggest short position in the franc at the end of November, according to the latest fact sheet on John Hancock's website.
Switzerland's currency surged as much as 41 percent against the euro yesterday, roiling markets worldwide after the Swiss National Bank's surprise decision to abandon the franc's cap against the euro. FXCM Inc., the largest U.S. retail foreign-exchange brokerage, said client losses on the swings threatened its compliance with capital ratios while a New Zealand-based dealer went out of business.
"When they pulled the rug under the market, the Swiss franc rallied against everything," said Chris Weston, chief market strategist at IG Markets Ltd. in Melbourne. Many funds "would have been in a lot of pain last night," Weston said. The John Hancock fund is run by Dori Levanoni and Jeppe Ladekarl, partners at Pasadena, California-based First Quadrant. Ladekarl declined to comment. Yesterday's drop brought the fund's loss during the past 12 months to about 6 percent, according to data compiled by Bloomberg. The fund was also betting on the Japanese Yen and the U.S. Dollar, according to the fact sheet.
First Quadrant was started in 1988. The firm, which is owned by Affiliated Managers Group Inc. in Beverly, Massachusetts, oversees funds that invest based on macroeconomic themes, across currencies and commodities.
Losses weren't restricted to the John Hancock Fund. The $50 million AMG FQ Global Alternatives Fund lost 8.3 percent yesterday and 6.1 percent this month, according to data compiled by Bloomberg. Bets against the swiss franc were among the fund's largest currency holdings at the end of September, according to a fund document.
In a fund commentary at the end of the third quarter, the managers said they anticipated price swings.
"We expect that macroeconomic and geopolitical challenges will generate more movements in exchange rates and asset prices." The SNB ended its three-year policy of capping the franc at 1.20 per euro a week before the European Central Bank meets to discuss government bond purchases to boost the euro-area economy. Such a policy, known as quantitative easing, could spur pressure on the franc to appreciate against the euro.
The SNB spent billions defending the currency cap after introducing it in September 2011.
Hedge funds and other large speculators raised bets that the dollar will rise versus the franc to the most in more than 1 1/2 years on Jan. 6, data from the U.S. Commodity Futures Trading Commission show. Wagers that benefit from dollar gains versus the Swiss currency exceeded those that profit from a decline by 24,171 contracts on Jan. 6, the biggest net long position since June 4, 2013.
Swissquote Group Holdings SA set aside 25 million francs ($28.5 million) following losses from the Swiss currency shock. "Many clients were following the confirmed longstanding strategy from the SNB and were anticipating a weakening of the Swiss franc against the euro," Swissquote said in its statement.
The drop "left the clients with a negative balance and has prompted the bank to activate a provision of 25 million francs."