Stocks prices displayed on an electronic stock board are photographed with a zoom effect in Bangkok, Thailand. (Photographer: Dario Pignatelli/Bloomberg)

World's Top Macro Hedge Fund Surges 47% After Big Stock Bets

(Bloomberg) -- As macro hedge funds worldwide shape up as the industry’s worst performers this year, Singapore’s PruLev Global Macro Fund is steaming ahead with a 47 percent gain.

The fund’s 2017 surge through October has made it the world’s best performer among macro rivals with assets of more than $100 million, according to data provider Eurekahedge Pte. The return was driven by stock bets after U.S. President Donald Trump’s 2016 victory prompted the $128 million PruLev Global Macro to add to holdings in the U.S. and its major trading partners, deputy fund manager August Li said in an interview.

This year’s return is “dominated by equities, which benefited from a host of Goldilocks conditions,” Li said, citing “more widespread, robust and sustainable global economic growth, in particular boosting equities in U.S., China, Japan, Switzerland and Eurozone.”

Prulev’s returns stand out as hedge funds betting on macroeconomic themes have climbed an average of 2.4 percent this year through October to rank as the worst strategy globally, according to Hedge Fund Research Inc. PruLev’s smaller size relative to peers may in part be helping its performance, as well as its risk appetite, according to Mohammad Hassan, head of hedge fund analysis at Eurekahedge.

“When managing over billion dollar pots, the emphasis on downside risk mitigation becomes crucial –- a 20 percent drawdown on a $2 billion pot can be much more costly than that for a $100 million pot,” Hassan said in an email.

Some of the world’s best-known macro managers, such as Brevan Howard Asset Management LLP, have lost money this year. Still, there are some signs of a revival amid hopes that rising interest rates will boost trading opportunities, with the category posting its best returns last month in almost seven years.

World's Top Macro Hedge Fund Surges 47% After Big Stock Bets

The PruLev fund runs on quantitative model and has allocated one-third of the risk to equities, another third to sovereign bonds and the remainder to a combination of commodities and currencies, Li said.

Li added that PruLev will dial back on risk as the probability of extreme market outcomes appears to be rising.

“A few black swan events, however, can change everything,” he said. Low market volatility throughout the year and the shattering of the calm in recent days “indicates that the fund needs to be more cautious in deploying risk as we enter 2018.”

PruLev’s Class B shares returned 17 percent in October and advanced a cumulative 1,219 percent since its February 2012 inception, according to a newsletter. PruLev’s Li said that the fund manager and members of the manager’s immediate and extended family hold a “substantial portion” of the fund’s assets under management.

World's Top Macro Hedge Fund Surges 47% After Big Stock Bets

“Also when managing more of in-house money, you have more leeway and independence when it comes to how much risk you want to take on,” Eurekahedge’s Hassan said.

While many Asian macro hedge funds have posted gains this year, they haven’t been as eye-popping as PruLev’s. Class A shares of the Graticule Asia Macro Fund, one of Asia’s biggest hedge funds betting on broad economic trends, advanced 0.46 percent in October, led by Japan and Greater China equities and bringing its year-to-date gains to 6 percent, according to an investor update. Like PruLev, Graticule gained mainly on its equity positions last month.

“The standout during the month was the Nikkei which posted an 8 percent monthly return,” Graticule wrote in its newsletter.

The AVM Global Opportunity Fund, also based in Singapore, added 2.4 percent in its Class A shares in October and 18 percent since the beginning of the year. The Hong Kong-based $463 million Arete Macro Fund added 2 percent in October and 5.6 percent since the beginning of the year.

PruLev’s annualized Sharpe ratio -- a gauge that measures the performance of a fund adjusted for risk -- is 1.46 since inception, according to its newsletter. That compares with a Sharpe ratio of 1.58 for the Eurekahedge Macro Hedge Fund Index, according to information on the data provider’s website. A higher Sharpe ratio indicates better risk-adjusted returns.

Graticule’s fund, in its newsletter, lists a 1.39 ratio since inception and Arete’s fund says that ratio is 1.3. The annualized Sharpe ratio of AVM, launched in November 2016, is the highest, at 5.25.

©2017 Bloomberg L.P.