Despite signs of slowing growth in markets around the world, at least one fund manager thinks things aren’t as bad as they look.
Robert Citrone, founder of Norwalk, Connecticut-based Discovery Capital Management and a so-called Tiger Cub, who once worked at Julian Robertson Jr.’s Tiger Management Corp., is bracing for a major move up in many global markets.
The macro specialist notes that the global financial markets reflect investor fears of a major slowdown, including in the U.S., and that investors “have lost a great deal of hope” in the European Central Bank’s policies. Citrone, writing in his latest weekly e-mail commentary to investors in his Discovery Global Opportunity Fund, says these policies “have allowed the economy to sink and have done little, other than make declarations about what they will do.” The manager, who has long been negative on China, also notes it is becoming more apparent that China’s growth is slowing, pointing to both company earnings announcements and other communications.
However, Citrone says he thinks that central banks in several countries are beginning to react to the current slow growth trends in a way that will quickly ease fears of a significant protracted global slowdown. The hedge fund manager stresses that he is optimistic about the strength of the U.S. economy, although he concedes that near-term growth could slow from the average 4 percent growth rate over the past six months to closer to a 2.75 percent to 3.25 percent range.
And while Citrone tells clients he has negative views on certain emerging markets and is concerned about “prolonged economic weakness in Europe,” these conditions could change soon, he notes.
“We believe that the ECB will soon follow through with aggressive action to address Europe’s poor state of economic health: stagnation,” Citrone writes in his e-mail. In China, he expects policymakers “will further ease monetary conditions.”
These moves would bode well for the global markets. “We believe this confluence of macro events will lead to a significant buying opportunity in the near-term,” Citrone says in the e-mail.
However, he warns the road at first will be very rocky. “Until we reach that inflection point, we anticipate markets will continue to be difficult as the markets grapple with the uncertainty caused by these issues, and the inconsistent/confusing messaging coming out of the Fed,” Citrone states.
Indeed, Citrone tells clients he lost money last week, “negatively impacted by the significantly dovish FOMC [Federal Open Market Committee] minutes.” He said he was especially hurt by certain positions in the U.S. yield curve and his long positioning in the U.S. dollar. “We have cut risk in both, more so in rates,” he tells clients.
We have regularly chronicled the difficult time macro traders have had navigating the markets this year, especially Discovery. The firm’s funds, which until this year were top performers, have been mired in losing territory. In September, however, Discovery — one among a minority group of Tiger Management descendants that are not long-short managers — and many other large global macro hedge funds enjoyed their best month of the year.
For example, in September the Discovery Global Macro Fund surged 4.3 percent, trimming its loss for the year to 10.21 percent. Discovery Global Opportunity Fund jumped 4.5 percent in September and is now down 6.61 percent for the year.
It is not clear which specific trades enabled these managers to reverse their losing ways last month. Most likely they were long the dollar against a number of currencies. At the same time, many commodities markets have been falling in price over the past few months, coinciding with the dollar’s surge.
According to a document from the asset management arm of investment bank HSBC, both Discovery funds lost about 2.8 percent in the first three days in October alone. It is not clear yet how Discovery fared during last week’s tumultuous trading.
