First Quadrant taps global macro trends to gain 12pc
Tuesday, 18 November 2008 12:45pm
Fund manager First Quadrant returned 12 per cent in the three months to September by taking a contrarian view on how to exploit volatility in equities, debt and currency markets.
The California-based manager, represented locally by Affiliated Managers Group (AMG), has specialised in global macro strategies for 20 years.
While the fund has not departed much from its investment philosophy built two decades ago, First Quadrant partner Rick Roberts said there are more opportunities now than ever.
"Things that we're seeing today, we haven't seen before. The shocking anomaly here is that this [abnormal] level of volatility continue to persist when we wouldn't expect them to persist," said Roberts.
For example, investors who mandate First Quadrant to manage US$14 billion currency strategies benefited from the group delivering as much as four times their currency performance targets following the raft of interest rate policy changes in recent months.
"In the global macro space, we make global asset allocation decision, invest in global bonds, equities long/short, currency markets long/short and in volatility strategies. What we're seeing is if you combine all these strategies and you have a very tight risk control around it, you can create a structure that is advantageous to clients," said Roberts.
The numbers prove it. According to Morningstar (US) data, four of First Quadrant's global macro funds were among the top 10 hedge funds in the global non-trend category in the three months to September, returning 6.33 per cent to as high as 12.29 per cent.
Among the fund's best calls was going short on the Australian dollar, a stance that they are only starting to unwind now that the dollar is hovering around 60 plus cents to the US dollar.
"What's important about that is that we were short Aussie dollars for fundamental reasons, not carry. Most of the currency books are essentially carry trades," said Roberts.
"In risk-averse markets, carry trades give you short-term volatility outcomes. That means you make a little and you make a little, then you lose a lot," he explained.
"We're on the opposite side of that trade. We are essentially running a long-term volatility program where we try and make returns on currency through means other than carry."
While the fund's overseas-based Global Macro funds are available locally, the group is looking to launch an Australian-domiciled version.
Michelle Baltazar
