Tough Year for Macro Funds May Yet Turn Around

Macro funds continue to struggle. The group on average lost between 1.4 percent and 1.7 percent in June alone, depending upon the hedge fund database you consult, and lost about 0.60 percent in the first half of the year.

The larger macro funds — those with more than $1 billion under management — have fared even worse this year, dropping about 1.3 percent in the first six months, according to eVestment Alliance.

Among the Big Three: Paul Tudor Jones II’s Tudor BVI lost 4.67 percent in June, putting it slightly in the red by 0.10 percent for the year; Andrew Law’s Caxton Global Investment lost 1.90 percent for the year; Moore Global Investment was down 1.8 percent in June and up just 0.30 percent for the year.

Of course, the June swoon came one month after macro funds posted their best monthly performance since April 2011.

Still, since macro funds made money for investors in 2008 when most others were in the red — in many cases by double-digits — the asset class has lagged most strategies.

The asset class’s 4.3 percent return in 2009 was the worst performance among nearly a dozen strategies as well as the S&P 500, which gained more than 26 percent. Most investors did not seem to mind at the time, given that the S&P 500 lost 37 percent the prior year.

Global macro funds were also among the worst performers in 2010, however, and lost money in 2011 when the S&P 500 gained a little more than 2 percent.

Why are many global macro players having such a hard time? For one thing, the various global markets have been especially volatile and have been unable to sustain a trend. Investors are generally hurt badly when they try to latch on to a trend and there is a sudden reversal.

The volatility has also led many macro managers to heavily reduce risk and not try to get ahead of a trend for fear of these kinds of reversals.

For example, analysts say the dollar’s sudden reversal against the euro in late June took investors by surprise after appreciating against the euro for most of the year.

In addition, the stock market surged in the first quarter and then tumbled in the second quarter before staging a late June rally of its own.

Not all macro funds have struggled this year. As we pointed out recently, Autonomy Capital, a $1.7 billion macro fund founded by Robert Gibbins, gained 8 percent.

Performance at Autonomy is said to have been driven in the first half by being short global growth. They had selective interest rate positions in developed and emerging markets that have performed well. According to an individual familiar with their results, a key differentiator for the firm has been tis selectiveness about exposure to a Euro break-up and the firm has not maintained direct exposure one way or another to this theme.

Despite the sluggish performance, investors still believe in macro funds. In the second quarter, macro was one of the only asset classes to experience capital inflows, according to eVestment Alliance.

HFR points out that macro — as well as relative value — has experienced especially strong asset growth since the start of the global financial crisis. It recently noted that while overall hedge fund industry AUM has increased by over 50 percent since the end of 2008, relative value has grown by 60 percent and macro by 66 percent while equity hedge has grown by just 31 percent.

As it turns out, investors started pouring into macro just as the asset class embarked on four years of lagging returns.

At this point, however, they may be wise to stand pat and not redeem. The contrarian view is that macro funds are about to enjoy a new resurgence.