Macro hedge funds to profit in forex, gold-Permal

Date: Friday, October 1, 2010
Author: Laurence Fletcher, Reuters

Macro hedge funds should find themselves able to profit from strong emerging market currencies and commodity opportunities, while staying nimble enough in changing market conditions, said fund firm Permal.

Omar Kodmani, senior executive officer at Permal Investment Management Services, which runs funds of hedge funds, told Reuters such funds are well suited to current market conditions, where investor sentiment can quickly swing between economic optimism and fear.

"We feel the opportunities are still there. In this environment, where the mood is flipping between recession fears and recovery hopes, macro is most nimble," he said this week.

Global macro funds, made famous by firms like billionaire George Soros's Soros Fund Management, bet on movements in instruments such as currencies, interest rates, commodities and stocks and are popular with a number of firms.

So far this year they are one of the top-performing strategies with gains of 6.43 percent in the eight months to August, according to the Dow Jones Credit Suisse Hedge Fund index, while the average hedge fund is up 2.46 percent.

Macro funds can benefit from the strength of emerging market currencies, whose economies are not burdened with high debt and low growth, Kodmani said.

"Rather than play the game of ugly sister between the euro, yen and dollar, which are all currencies with difficult fundamentals behind them... it's more attractive to look at countries with good balance sheets and good growth rates.

"Mexico, Korea and Indonesia are all good country credits with the potential for strong currencies and good interest rates."

Commodity markets also offer good opportunities to follow market rises or falls and to exploit price anomalies, he said.

"We also see commodity markets offering very good opportunities in directional and long-short. We like gold in general, but what we like more is the relative value trading opportunity between gold bullion and gold mining shares."

DEALS

Kodmani has a 25 percent allocation to so-called event-driven funds, which bet on corporate events from mergers and acquisitions (M&A) to restructurings, compared with a usual weighting of 20 percent.

Such portfolios, particularly popular among new launches at the start of the year, are favoured by many fund selectors as deal activity picks up.

"We've have been building it up since 2009. Corporates have lots of cash and M&A is one place they'll put this," he said.

Kodmani added he sees light at the end of the tunnel for long-short equity funds -- down 1.88 percent so far this year after many were hit by volatile markets -- as markets calm down.

"Investors have been wrestling with whether the global economy is on a recovery path or double dip path... The whole market has been rising or falling.

"Once it's shown that we're avoiding the negative scenario, long-short will do well. There will be winners and losers, sector rotation and M&A, which will provide very good ingredients for long-short managers to benefit from."