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Bailey McCann, Opalesque New York: This is our regular report on hedge funds and alternative asset managers who are successfully protecting assets and outperforming the markets during the first months of 2020.
Capital preservation
Ruffer's flagship Total Return Fund was up 5.5% in April and is up 4.7% year to date. The UK-based absolute return fund is designed to outperform each month regardless of what markets are doing.
Ruffer has done well this year overall. The firm made a series of bets early on in the pandemic panic designed to preserve capital and generate alpha and they've worked out. The fund manager made more than £2billion by the end of the first quarter, after repositioning for the pandemic panic.
Chairman Jonathan Ruffer had this to say about the markets in his most recent investment review: "When we look back, my guess is that this period will be the one we are most gratified by - since we were positioned for a mighty fall, broadly based across asset classes, and we had a portfolio construction that only made sense if these were the very conditions which occurred. Capital preservation may sound boring in advance of a shock, but it enables us to make good money in its aftermath, and April turned out to be one of the best months in our history."
Looking ahead, Ruffer says that vigilance will be important as will a willingness to focus on capital preservation even when it feels uncomfortable.
Riding waves of volatility in currencies
Wellington Management's Global Currency Absolute Return Fund was up 0.9% in April and is up 7.1% year to date. The strategy invests in a range of global currencies via financial derivative instruments. The goal of the strategy is to consistently beat the ICE Bank of America Merrill Lynch 3-month US Treasury Bill Index.
Volatility is a feature of FX markets even in the best of times, but the global pandemic has put additional pressure on some particularly vulnerable markets. Investing in derivatives can provide a buffer against some of that volatility.
Looking at the second half of this year, it is likely that currency traders will have a broad and deep opportunity set. Writing in a recent research note, analysts at Barclays suggest that the weakening dollar will create added pressure on emerging markets currencies. Emerging markets are looking "expensive" given the unique challenges posed by the pandemic. Emerging markets have fewer resources with which to respond to a public health and economic crisis. Spreads are poised for the kind of dislocations absolute return traders tend to prefer.
Rallies in smaller currencies are also leading to renewed interest by currency traders. Small currencies can outperform in crisis scenarios because they have fewer defensive capabilities.
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Last issue of The Corona Fighters Report: Report 43.
Opalesque's Corona Fighters reports are open articles. To see all past reports, type Corona Fighters in our search engine: www.opalesque.com/index.php
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Disclaimer: This is not investment advice. Opalesque has not verified this information and gives no warranty of accuracy or completeness. Past performance is not indicative of future results. See our Terms & Conditions for more information.
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