“What You Got Was The Exact Opposite”: Macro Hedge Funds Join The “Dumb” Money

I swear to God I’m starting to think that before this is all over, index funds are going to be the only damn investment option for anyone that can’t trade for themselves.

Everyone is acutely aware of the “active” to “passive” shift that’s unfolded on a “bigly” scale over the past I don’t know how many years and as I documented earlier this week in “Yes, I’ll Take Vanilla Please,” YTD flows into ETFs have been i) the strongest in the quarter century the industry has been around, and ii) characterized by a conscious choice among investors to favor passive versus active.

The latter dynamic was particularly visible in February, as shown in the following table from FactSet:


Well needless to say, this is a veritable death knell for the “2 and 20” crowd. If people aren’t even willing to pay a slightly (by comparison) higher expense ratio for an actively managed mutual fund or ETF, then you can f*cking forget it when it comes to shelling out for a “rockstar” hedgie whose returns are anything but rockstar-ish. And that goes double (or triple) when benchmarks are just fine in terms of churning out reliable 8% gains.

Have a look at this chart and do note the highlight:



So consider that as you read the following excerpts from WSJ:

A revival in fortunes for hedge funds that trade across global assets, sparked by Donald Trump’s election victory, has hit trouble.

These so-called macro funds, which manage around $575 billion in assets and trade bonds, currencies and stocks, made huge gains in the wake of Mr. Trump’s U.S. election victory in November.

Managers, starved of attractive trades for years, profited from a stronger dollar and higher Treasury yields. Hopes that Mr. Trump’s pledges of government spending would boost growth and inflation sent the 10-year Treasury yield from 1.86% to 2.6% by mid-December, while the euro fell 5% against the dollar.

But the greenback and Treasury yields have gone into reverse since mid-December, hitting the performance of many of these funds. Concerns have grown over the details and timing of Mr. Trump’s fiscal spending plans and whether interest rate rises from the Federal Reserve will constrain longer-term growth.

Among funds in the red this year is London-based Rubicon Fund Management. The fund, headed by former Salomon Brothers trader Paul Brewer, is down 9% this year, according to numbers sent to investors and reviewed by The Wall Street Journal. It is one of the biggest losses by a hedge fund so far this year, according to reviewed performance figures. The fund had made double-digit gains in the weeks following Mr. Trump’s victory, helped by bets on rising bond yields. A spokesman for Rubicon declined to comment.

New York-based Caxton Associates, which runs about $7.7 billion in assets and has been positioned for rising bond yields, was down 2.5% this year to last Friday. It had gained 6.4% in its main fund last year, much of which came from market moves following President Trump’s election, according to numbers reviewed by The Wall Street Journal.

“Most macro funds have been positioned for a stronger dollar and higher rates. What you got in January and February was the exact opposite,” said Michele Gesualdi,  chief investment officer at Kairos Investment Management, which invests in hedge funds and runs around $10 billion in assets.

Yes, “the exact opposite” has happened, which has hilariously led these same macro funds to one inescapable conclusion: if you can’t beat ’em, join ’em…

… which ironically means that the “strategy” employed to combat sh*tty YTD returns will likely backfire spectacularly as the “smart” money has now joined the “dumb” money in the “all-in” equities camp.


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