One of the biggest decisions that hedge fund managers in any investment style have to make is how they respond to significant losses, even if they are relative in nature. So think back to the response last year of Paul Tudor Jones in reconfiguring the capital allocations within his funds. Even though he made good money in 2009, his flagship BVI Global Fund was up 16.51% last year, he rejigged allocations - reducing some systematic strategies, cutting out some emerging market exposure altogether and increasing the classic opportunistic trading element. This was intended to be something of return to its roots for the Global Fund, as John Tudor Jones himself managed a bigger proportion of the assets, and macro in total was re-emphasized as it made up 88% of Fund assets from the 3Q of last year. The call was that the markets environment would be more suitable to that big-picture type trading that served Tudor Investment Corporation so well in the 90's, as QE created a time-warp.
This re-think of capital allocations to strategy enabled Tudor to be more nimble in moving capital around in the year since, and since part of the rationale was to enable capital preservation, in that he has broadly succeeded. Tudor’s flagship BVI Fund is up about 3% year to date.
Like systematic CTAs, global macro hedge funds like to ride emergent trends. Macro funds give themselves some scope to argue with markets to a degree, so they will try to buy/sell around turning points of assets based on a macro-economic viewpoint, but the big money money is made from being on trends that persist more so than catching a bottom or top.
Given the switch-back nature of some markets there has been scope to win and lose out of equity exposure. Hard commodities have had both bull and bear phases this year, and softs have become the new game in town for those that didn't know what a bushel or crop report was a year ago. Put these market outcomes together and no wonder that we have a good range of returns within the universe of macro managers. The meaningless average return was over -5% at the end of July for global macro funds.
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