Discovery Sets the Pace

Robert Citrone’s macro fund is one of the strategy leaders this year.


Illustration by II

The Discovery Global Opportunity fund continued to surge in May, in what is shaping up to be a mixed year for macro traders. Tiger Cub Rob Citrone was up 2.67 percent last month, extending his gain for the year to 23.15 percent.

This compares with a 20 percent gain for Chris Rokos’s Rokos Capital Management. On the other hand, Brevan Howard’s BH Macro is down 2.36 percent for the year despite gaining 0.76 percent in May, and Haidar Capital Management’s volatile Jupiter fund has dropped 17.7 percent for the year.

A big swing factor in general for macro funds this year is their view on interest rates. Many who thought the Fed would be cutting rates have been hurt, and the skeptics have benefited.

Discovery’s May gains were driven by U.S. equities, both long and short, U.S. long credit, and long bitcoin, according to the most recent monthly report, obtained by Institutional Investor. The firm also benefited from longs in Argentina.

Discovery said its China short theme was the largest detractor. The hedge fund also lost money shorting Japanese stocks and from various emerging-markets trades in credit, including Ecuador (long), Turkey (short), and Argentina (long). Heading into June, Discovery said that it remained short its key themes but has reduced them. They include select U.S. equity structural shorts in financials and consumer discretionary stocks. The firm is also short the China theme through the currency — its largest exposures are in Taiwan and China — and some equities in China and Hong Kong.

In addition, Discovery is negative on Turkey primarily through credit default swaps exposure, in Europe mainly through index exposure to subordinated bank debt and some equities, and in Japan across select equities and rates. On the long side, Latin America in general and Argentina specifically remain Discovery’s biggest exposure, “despite some trimming” in Argentina, Discovery stressed in the letter.

Citrone is excited about Argentina’s prospects under its new president, Javier Milei, especially in light of the recent passage of his “extensive economic deregulation.” Sure enough, in May the country’s inflation rate slowed for the fifth straight month and is at its lowest since the beginning of 2022. Of course, there are still many uncertainties given the country’s long history of economic problems and devastating currency devaluation.

In Argentina, Discovery is invested in equities and sovereign bonds, both U.S. dollar– and peso-denominated. Elsewhere in Latin America, the hedge fund has long bets on Mexican equities and Ecuador’s sovereign bonds, with smaller exposures to Venezuelan bonds, Brazilian interest rates, and Peruvian bonds.

Discovery is also long select U.S. corporate credit and some rates; Indian equities and rates; and the U.S. dollar, primarily against Taiwan and China.

Citrone notes that the hedge fund still is not bullish on U.S. equities. But it also recognizes that with the amount of liquidity in the system, “the markets want to grind higher.” As a result, the hedge fund reduced its overall net U.S. short equity positioning by covering some shorts and adding to longs.

“At this point, this is more of a tactical move as we still don’t like the poor positioning that we see — over levered longs that are not getting paid enough risk premium in a world that we see as having the highest levels of geopolitical risk, which market players seem to have completely dismissed,” Citrone explained.