Robert Citrone is bracing for a recession.
The Tiger Cub and founder of Discovery Capital Management expects negative economic growth in the first half of the year thanks in large part to uncertainty surrounding President Trump’s tariffs. But it won’t be nearly as bad, he said, as many anticipate.
What’s more, he believes there will be a strong recovery afterward.
“Investors are now gearing up for a full-blown recession, but my base case is the U.S. recession will be shallow, lasting just one or two quarters, followed by a robust recovery in the second half of 2025,” Citrone told clients in his latest monthly report, dated April 8 and obtained by Institutional Investor.
He predicts the U.S. economy will boom in 2026. Growth will be fueled by consumer strength, reconciliation spending, and potential tax cuts, he said.
Trump’s Wednesday announcement that he is postponing many of the tariffs for 90 days has not changed Citrone’s overall sentiment, according to an investor.
Citrone runs a combination macro and fundamental equity hedge fund with a strong exposure to non-U.S. and emerging markets. The fund was down 1.95 percent in March and 3.46 percent for the quarter after posting huge gains of 52 percent and 48 percent in 2024 and 2023, respectively.
As II has been chronicling all year, Discovery was increasingly bearish for several months thanks to the uncertainty in the markets in the leadup to the March tariff announcements.
“Despite the market’s negative response to Liberation Day, our preparation for a bearish scenario allowed our shorts to cushion the impact on our long book, resulting in positive equity returns for both March and the year to date,” Citrone told clients in the letter.
March losses were driven by “structural long exposure” in emerging markets, especially Argentina, Turkey, and Mexico, as well as long positions in U.S. credit.
How is Citrone positioned for his anticipated scenario?
Even before Trump’s Wednesday announcement, Citrone had said in the letter he was beginning to see countries stepping up to negotiate tariffs. As a result, he has started covering some of the firm’s short exposure, expecting a short-term bounce.
“While tariff specifics remain murky, the broader impact — particularly on consumer and business sentiment — will be pivotal,” Citrone asserted.
When he wrote the letter, the portfolio was 15 percent long equities. Citrone said he is “less constructive on Europe. Policymakers there are too slow to act decisively, especially in Germany and France.”
The founder said he remains short on his China theme, with larger positions in currencies than equities. “Tariffs are likely to compound China’s internal challenges as it navigates a deleveraging cycle, likely leading to further currency devaluation,” Citrone explained.
Discovery is short China through currencies and equities, and short currency in Taiwan. When it comes to long positions, Discovery favors Argentina stocks and dollar- and peso-denominated sovereign bonds — a major theme for some time. The fund also holds Mexican stocks and has smaller exposures to Venezuela and Peru in equities and bonds.
Discovery is long select U.S. equities in financials, industrials, technology, materials, and energy; U.S. corporate credit; Nigerian credit and currencies; and Turkey’s currency.
As for shorts, Discovery is betting against some industries disrupted by tariffs, including autos, shipping, and pharmaceuticals companies, and against Japan across select equities and rates.
