February Performance Newsletter - MF Macro
Global Opportunities Fund March 11th, 2024
February Performance Commentary:
The MF MACRO Global Opportunities Fund added +0.59% in February, bringing the fund to +1.95% over the last 3 months. February performance was strong after a slow start to the year, as the portfolio benefitted from an increase in existing trade exposure as well as new ideas adding risk. The fund outperformed the Bloomberg Aggregate Bond Index (-1.4%) and underperformed equity returns and a 60/40 portfolio. The portfolio ended the month with 45% cash which we believe further highlights our positive performance given a large cash drag.
Fixed Income - We continue to be correct in our view of a more cautious Fed, and this has led to good timing and positive performance across our fixed income portfolio. Current positioning holds small gains, however we believe there will be a near-term resurgence in mid-year rate cut expectations that will see this part of the portfolio outperform. We continue to add exposure (long and short) as appropriate to trade the range. Our high yield short has given back some of the early gains, but we believe credit spreads are not properly discounting probabilities of credit stresses and potential policy mistakes.
Equity - As we increased position sizing in January, we were rewarded with amplified returns. We understand however that increased risk cuts both ways, so we remain committed to tight risk management practices, which were on display in the month. In February, we actively allowed winners to run and were stopped out of some short legs in relative value trades. As an example, our long Australian equities position added +7% after the New Zealand short leg was stopped out earlier in the month. We are strong believers that proper risk management and the structuring of our relative value trades create positive asymmetric return outcomes.
Commodities - At the end of February we researched a long oil equities / short oil trade which we have since entered in early March and are eager to see it play out. In the medium term, we believe the oil spot has asymmetric risk to the downside, while oil producers are undervalued given the significant cash cows they have become. We reentered the short copper / long gold trade again this month, which performed well with gold ending +6% on the month. This is a reversal from last month's identical trade where copper ran to +6% and gold was stopped out on a trailing stop. We entered this trade again as we believed there was a strong technical set up which matched current fundamental flows. Both of the relative value trades made money, due in large part to the structuring we employed on these trades.
Conclusion - The portfolio was moderated by an ever decreasing cash drag. Increasing the maximum size of individual positions from 5% to 10% of the portfolio has been positive for the portfolio as it has forced us to focus on high conviction trades and better research on a smaller volume of ideas. There is still more work to be done here but we have significantly improved the speed of our process from idea to active trade. We have also grown more comfortable employing relative value trades to isolate certain exposures and remove beta from the portfolio. We continue to believe the current market is dynamic and see downside risk. This risk could come due to a credit event or a reemergence of inflation which could drastically change the direction of monetary policy.
Fund Description and Objective: The Fund is a discretionary global macro strategy diversified across asset classes and geographies that provides uncorrelated returns to global markets. The Fund is designed to generate absolute returns in all market environments, with the objective of outperforming treasuries +3% with less volatility than and low correlation to broad markets.