Private investment firms that bet on macroeconomic trends are now wagering on the appreciation of the U.S. dollar, according to data from Bank of America Merrill Lynch about hedge fund clients.
The firms reversed course after attempting to make money on the greenback's decline earlier in the year. The dollar has fallen by about 0.6 percent versus the euro and about 3 percent versus the yen so far in 2014.
Fund managers were likely encouraged by Federal Reserve Chair Janet Yellen's March 19 remarks on the economic recovery, which provided further evidence for traders that interest rates would increase in 2015. Rising interest rates are typically correlated with currency appreciation as more foreign money flows in because of the relatively high lending rate.
Macro funds also cut their short positions on the 10-year U.S. Treasury note and are, on average, close to a neutral view on the securities, according to BofA Merrill Lynch Global Research. They also maintained their short exposure to commodities but also reduced their bets against emerging markets and developed countries outside of North America.
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Macro firms have struggled overall this year.
Prominent examples, according to people familiar with the performance and a report by HSBC Alternative Investment Group, include:
The exact reasons for their respective losses were unclear. Representatives for Brevan Howard, Tudor, MKP and Fortress declined to comment. A spokesman for Caxton did not respond to a request.
The average for the category is a decline of 1.75 percent so far this year, according to HSBC.
"Macro managers are typically trend followers and year-to-date it has been more of a mean-reversion market, which has essentially chopped these managers up," said Michael Oliver Weinberg, a hedge fund expert at Columbia Business School. "Macro managers got chopped up in the Nikkei, Japanese yen, Chinese currency to name a few."
Trend following refers to managers betting on broad economic shifts, like the Japanese economy recovering; mean reversion means a return to market trend after periods of unusual performance.
Betting on Japan also caused losses for many macro firms in January, when the local stock market declined and the currency appreciated.