Discovery Capital Management is poised to post its fifth loss in the past six years after its flagship fund lost nearly 19 percent in November.
The firm’s Discovery Global Opportunity Fund was down 25 percent for the year heading into the final month, according to an investor. So far this month, it is said to have made back a big chunk of last month’s loss, according to the investor.
It appears be too late for many investors, who have apparently lost their faith in a turnaround. The firm is expected to finish the year with $2.2 billion, with fund manager Robert Citrone’s own money accounting for the largest proportion of assets, according to the investor. This is down from $5.7 billion at the end of 2017 and $15 billion just five years ago.
The investor also said rumors that the firm is erecting so-called gates — preventing investors from withdrawing money on time — are not true. Discovery declined to comment.
Citrone is a so-called Tiger Cub because he worked at Julian Robertson Jr.’s Tiger Management from January 1995 until March 1999 after serving as a portfolio manager at Fidelity Investments.
Discovery pursues global macro and long-short equity strategies. The firm tells clients it combines a macro, top-down view with bottom-up fundamental analysis. It emphasizes equities, credit investments, and currencies in both emerging and developed markets.
November’s large loss was heavily driven by Discovery’s 5G theme, especially its big bet on Intelsat.
As II reported earlier this week, shares of the spectrum player are down nearly 70 percent this year, with the bulk of the decline occurring in November, after the Federal Communications Commission unexpectedly announced plans to publicly auction the C-band spectrum for 5G telecommunications development. Satellite operators such as Intelsat hoped to sell spectrum frequencies to major telecommunications players.
[II Deep Dive: Intelsat Is Hurting These Hedge Funds]
Intelsat was previously a big winner for Discovery.
Otherwise, most of Discovery’s losses this year have come from the short book, including its negative bet on Italian credit and makers of memory chips.
It has fared decently from its long position in Brazil and global tech, according to the investor.
Discovery, however, is not moving away from its bearish positions.
It has a generally bearish macro view for 2020. It is telling investors it believes global monetary easing is over. It cites the Bank of Japan, for example, which has cut back on its bond purchases.
Discovery is also concerned about political risk in the U.S. and other countries, according to the investor. It expects big sanctions against Turkey, for example. It also thinks China’s economy will slow down more than many people think.
Discovery is also telling investors it thinks that stocks — which have surged this year mostly from multiple expansion rather than from earnings growth — will see price-to-earnings ratios contract next year. As a result, Discovery has cut its gross exposure to equities from 180 percent to 150 percent, according to the investor.
Discovery is also telling investors it is still slightly net long, but by early next year, it anticipates being net short.
In general, it sees significant pressure from three emerging markets: Turkey, South Africa, and Mexico. It expects the U.S. markets to be choppy and the U.S. dollar to be weaker.