Macro hedge funds hopeful the good times are back
down Broader market conditions look more favourable after QE’s distorting effects
Life has not been good for many macro hedge funds in recent years — but the green shoots of recovery are beginning to appear.
Quantitative easing has been a big drag for traders by pushing bond yields lower and for longer than many had expected, distorting fund managers’ fundamental analysis of markets and suppressing the volatility they like to trade.
Macro hedge funds epitomise what many people imagine the hedge fund industry to be — traders taking punchy bets on a move in the yen or the path of US interest rates.
So modest positive returns in the first quarter are raising hopes that broader market conditions have become more favourable since the European Central Bank ended its bond-buying programme at the end of last year.
While hardly spectacular, the first quarter’s 2.6 per cent average gain, according to data group HFR, would equate to an annualised return of more than 10 per cent, should it be maintained. That would be a welcome improvement after a loss of 4.1 per cent last year and lacklustre performance in the previous three years.
One boost has come from the steady decline in bond yields since late last year. A number of traders, such as Brevan Howard and Goldman Sachs Asset Management’s macro fund, had been betting on falling yields (the flip side of rising prices), and were able to profit.
Computer-driven funds that try to latch on to trends in global futures markets have also found the decline in yields positive for returns. Bets on lower bond yields have proven the most profitable trade on an asset class this year, according to Société Générale’s Trend Indicator, a model portfolio that simulates the bets such funds may take.
Gains in sterling and the rally in global equities have also provided opportunities to make money.
The woes of macro traders in recent years echo many of the frustrations of the wider hedge fund industry, which has lost money in two of the past four years. With macro returns improving, managers of other hedge funds are hoping that the good times are back.