Macro managers finally gain on 'perfect storm'

Hedge funds that bet on broad macroeconomic trends have bled money all year waiting for their investment ideas to hit. Some of their biggest wagers—from rising interest rates to a stronger U.S. dollar to more volatile markets—finally paid off in September, helping reverse an otherwise miserable 2014.

Some of the best-known money managers in the industry, including Discovery Capital Management, Brevan Howard Asset Management, Tudor Investment Corp. and Caxton Associates, produced strong returns in September. As a whole, so-called macro funds had their best single month in four years, rising 1.46 percent on average, according to the Absolute Return Macro Index.

"September was the perfect storm for macro managers. All the big themes that they took pain on in the first half finally hit," said Chris Solarz, head of macro manager research at investment consulting firm Cliffwater.

Paul Tudor Jones, chief executive officer of Tudor Investment Corp.
Amanda Gordon | Bloomberg | Getty Images
Paul Tudor Jones, chief executive officer of Tudor Investment Corp.

The major theme for the month had a patriotic bent: betting on the strength of the U.S. dollar.

Many macro funds, including Caxton, Moore Capital Management, Tudor, Brevan Howard, MKP Capital Management, Discovery and Bridgewater Associates, essentially bet on the relative strength of the American economy, according to people familiar with portfolio positioning. They all went long the dollar (a bet that its value would appreciate) while simultaneously shorting currencies like the euro and the yen. The dollar gained about 4 percent versus the euro and 5.4 percent versus the yen over September.

Representatives for the firms declined to comment.

Another winning theme was betting on rising interest rates by shorting U.S. government bonds.

That position hurt many fund managers over the first half of the year when they stayed near record lows despite an improving economy. The market value of a 10-year U.S. Treasury bond, for example, declined sharply through midmonth before recovering slightly as interest rates rose a bit over September overall.

Another trade, according to hedge fund industry observers, was a continuation of the so-called reflation trade in Japan. That meant being long Japanese stocks while shorting the yen, essentially a bet that the country's aggressive economic stimulus program would boost equities while devaluing the currency. The same wager paid off handsomely in 2013 but burned many managers early in 2014.

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"That's been their complaint over the past three years, 'Hey, there's been no volatility, so it's been really tough to trade.' At least when there was a return of volatility they generated some returns," said Eric Siegel, head of hedge fund research and management at Citi Private Bank, which works with clients with $25 million or more. "That's what we like to see."

The CBOE Volatility Index, a measure of market fear usually referred to as the VIX, increased 36 percent in September. It has still been relatively low for the last three years and well below its peak during the 2008 financial crisis.

Among the biggest winners was former Soros Fund Management Chief Investment Officer Keith Anderson.

His $600 million firm's flagship fund, Anderson Global Macro, gained 9.3 percent for the month, according to people familiar with the performance. Contributing to the gains, according to one of the sources, was shorting three- to five-year U.S. Treasurys; shorting the yen and going long Japanese stocks, and taking advantage of volatility in euro and Australian dollar prices. A spokesman for the firm declined to comment.

Others with big months included Andrew Law's Caxton, which gained 3.46 percent in its flagship fund, and Rob Citrone's Discovery, which returned 4.7 percent. Both funds are still down for the year, 2.36 percent and 9.81 percent, respectively. Paul Tudor Jones' Tudor gained 3.61 percent, putting it back into positive territory for the year.

Big brand macro hedge fund performance

Sept return
2014 return
Rubicon Global Fund 11.98% -14.07% 26-Sep
Graham Enhanced Volatility 9.58% 6.13% 30-Sep
Anderson Global Macro 9.30% 0.70% 30-Sep
Gavea Fund 6.01% -0.21% 30-Sep
Discovery Global Macro 4.70% -9.81% 26-Sep
Brevan Howard 4.40% 0.40% 30-Sep
Tudor Global Fund 3.61% 1.13% 30-Sep
Caxton Global Investment 3.46% -2.36% 30-Sep
MKP Opportunity 1.46% -5.38% 30-Sep
Balestra Capital Partners 1.25% -12.10% 30-Sep
Fortress Macro Fund 0.92% -4.90% 30-Sep
Moore Global Investors 0.64% -4.31% 25-Sep
Bridgewater Pure Alpha II -4.38% 2.90% 30-Sep
Source: reporting

One outlier was Ray Dalio's Bridgewater. The largest hedge fund manager in the world lost 4.38 percent in its flagship Pure Alpha II fund. It's still one of the best performers this year, up 2.90 percent, according to performance figures obtained by

The fund's largest losing trade was betting on higher long-term interest rates like 10-year U.S. Treasurys. The second-biggest loser was a long bet on the Brazilian real. Other smaller losers included long bets on precious metals like gold and silver; longs on crude oil; and longs on emerging market stocks, according to a person who tracks the firm closely.

Bridgewater typically has dozens of positions on at once so is highly diversified. It also correctly bet, like other macro funds, that the U.S. dollar would appreciate versus the euro and yen. The fund has produced annualized returns of 13.3 percent net of fees since inception in 1991. A spokesman for the $160 billion firm declined to comment.

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Observers celebrated macro after a long stretch of poor returns.

"It's about time," Cliffwater's Solarz said. "We finally saw macro managers do what they are built for—catch big themes that are uncorrelated to stock markets."

What's unclear is if the gains can continue. "You don't want one month to cloud your judgment too much. I generally still think it's harder to make money in a rising rate environment than in a falling rate environment, just because you have the tail winds against you," Citi's Siegel said.

Investors have pulled about $5.17 billion from macro funds this year, according to data tracker eVestment. That comes after pulling $10 billion in 2013. There is $230.53 billion committed to the strategy overall.

Allocators to hedge funds still see them as a good diversification play.

"We don't really know when they're going to work necessarily," Siegel added. "But we know over the long term these types of strategies, where you have people who are looking for dislocations in the market and trends that they can latch on to, that tend to do well when volatility spikes, are beneficial to a portfolio."

Macro hedge fund assets and flows

Total Assets (B)
Net Flow (B)
2007 $154.70 $13.08
2008 $143.28 $0.10
2009 $158.75 ($0.36)
2010 $196.18 $20.44
2011 $200.17 $1.67
2012 $214.89 $10.95
2013 $214.44 ($10.00)
2014 (Jan-Sept) $230.53 ($5.17)
Source: eVestment