Using The Whole Field

While many managers were hit hard when the Swiss Central Bank dropped its peg to the euro in January, Haidar made money on the sudden jump in the franc’s value. Knowing the link was temporary and watching the euro tumble at the end of last year, he established a small long franc position. “Since it requires massive purchases of the euro, we felt the Swiss would find it too expensive to maintain the link with the euro,” Haidar explains, especially as sluggish continental growth and quantitative easing was fueling the decline of the euro versus the dollar.

The fund is positioned to benefit from further strengthening of the U.S. dollar, weakening of commodity prices, rising bond prices as interest rates decline and falling stocks. “But these positions could quickly change,” he says.



’40 Act Alternatives
Compared to alternative funds, macro hedge fund managers tend to be more seasoned, with more investment tools in their arsenals, and more of them have delivered stronger performance over a longer period. But they come with higher fees, greater minimum investments and less liquidity, and they frequently are more levered than mutual funds.

The William Blair Macro Allocation I Fund, which started in late 2011, has delivered three-year annualized returns of nearly 10% with volatility of less than 7.4. With $1.36 billion under management, the fund has one of the largest asset bases of an alternative ’40 Act fund.

Co-portfolio manager Tom Clarke explains the fund primarily uses ETFs and a host of derivatives, including index futures, swaps and options, to establish the fund’s long and short equity, foreign exchange and credit positions. The fund maintains no commodity exposure.

At the end of April, the fund was 38% net long stocks—bullish on foreign equities, bearish on U.S. shares. The fund is long on emerging market currencies versus the U.S., Australian and New Zealand dollars and the euro. And it is 10% net short on 10-Year U.S. Treasury, euro zone and Japanese bonds, believing they are substantially overvalued, meaning he thinks rates are likely to rise substantially over the next five years.

KCM Macro Trends is a $94 million Houston-based fund that’s been around since 2008—with five-year annualized returns of over 5%. But it has been more volatile than other funds, with a standard deviation around 13.5. Over the same time, investors have seen a couple of yearly gains above 25%, a flat year and one down year, when it dropped 13%.

Manager Martin Kerns runs his fund like a hedged equity product. Two-thirds of his book are equities, whose exposure is shaded by select foreign exchange, high-yield credit and commodity allocations to add alpha and protect against falling stock prices.

His exposure is guided by broad macro trends, with individual positions determined through bottom-up research. Because his bullish outlook has limited hedging, Kerns’s portfolio has been buffeted by choppy markets.

Since the financial crisis, diversification away from stocks and bonds has proved costly. However, adding proven global macro managers can deliver absolute returns that can smooth performance. Now may be an opportune time to consider gaining such exposure.