Hedge funds find no joy in macro

Markets have been driven higher by policy proposals rather than hard-won reforms on issues

In 2017, macro hedge funds were expected to shine. So far? Not so much. It’s been a far from impressive first two months for funds that trade around macroeconomic events. Discretionary funds rose just 0.3 per cent through February, according to Hedge Fund Research Inc., while the average hedge fund rose 2.2 per cent and the MSCI World Index gained 5 per cent. Some did far worse than global stocks, as the chart below shows.

“The perception was that once Trump got elected, there would be a more hawkish tone to the Fed,” Darren Wolf, head of hedge funds for the Americas at Aberdeen Asset Management, said in an interview. “That divergence in global policy between what the US is doing and what the rest of the world is doing is normally a favourable macro backdrop.”

It hasn’t turned out that way, hedge fund managers say, in part because this change has been slight thus far. Markets have been driven higher by policy proposals rather than hard-won reforms on issues including taxes and trade. At the same time, managers have been trying to capture the US stock market’s post-election exuberance while exercising caution.

Some macro funds have been drubbed by bets against US bonds, which started rising in late February.

What’s more, foreign exchange “hasn’t been kind to macro,” said Robert Savage, head of research for Track.com, which publishes a daily newsletter for money managers, and the former chief strategist of hedge fund FX Concepts. “Most are still long the US dollar but don’t have much to show for it.”

Macro funds took losses with the Japanese reflation trade — long Japanese stocks and short the yen. “It’s the exact same idea — they made a lot of money on this trade in the fourth quarter and gave it back in early 2017,” Wolf said.