January Performance Newsletter - MF Macro
Global Opportunities Fund February 18th, 2023
January Performance Commentary:
The MF MACRO Global Opportunities Fund added +0.2% in January, putting the fund at +2.72% over the last 3 months. After a strong finish to 2023, January performance was more muted due in part to a pull back in fixed income, as rate cut expectations began the year high and reversed after strong economic data persisted. However, the fund outperformed the Bloomberg Aggregate Bond Index and matched returns of the 60/40 portfolio. In January we continued to increase the active overall exposure of the portfolio reaching 55% utilization. We believe this further highlights our positive performance still given a large cash drag.
Fixed Income - We wrote throughout January about our rate cut expectations. We were clear in our message that we believed the market was pricing too many cuts, and too soon. We were vindicated during January, as strong employment data and a hot CPI reading pushed rates higher. Ahead of this, we sold the majority of our long fixed income in early January, timing well the move in rates. The US10Y ended Jan above 4% and is currently at 4.3%, and the curve has continued to steepen. We have since re entered much of our fixed income positioning at these higher rates as we believe the market has oversold given our view of an implicit cap on rates. Credit spreads remain tight and we believe there should be some widening set to occur as rates remain higher for longer and credits begin to deteriorate. We have entered a short on high yield fixed income as a result.
Equities - Beginning in January, we determined that we should be sizing up some of our positions. We therefore sized up some of existing ideas from the latter half of December, including Defense and Consumer Staples. We also entered into some specific country ETFs, including Japan and Australian equities, given a positive view on relative value of their markets and the underlying currencies. We believe the wide breadth of regional ETFs and the increasing divergence in economic policies provide us clear opportunities. We have since entered additional relative value trades across nations within similar markets.
Commodities - January saw us generate a 5% profit on an oil trade which we held for 2 weeks. We believed that oil was in the lower end of its range, not consistent with falling inventories and increasing geopolitical conflicts in the middle east which caused risk to the upside in oil. These factors combined drove us to place a 3% portfolio position which profited nicely. It was great to get this trade on oil as oil has been difficult over the last 12 months. To end the month we placed a long Gold, short Copper trade which has performed well, with the copper short running to over +5%, the long gold side hit our trailing stop loss and overall the trade was successful by the middle of February.
Conclusion - The portfolio was moderated by an ever decreasing cash drag. We believe our returns are respectable given the low utilization as we focus on ramping our portfolio. We have increased the maximum size of individual positions from 5% to 10% of the portfolio, given our increased usage of shorts to offset beta risks in the portfolio. This change was based on a conversation we had with a successful short only manager who encouraged us to focus on higher conviction trades and lean into our winners. 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.