JPMorgan GMO Fund Unscathed in March Preps for More Market Pain

(Bloomberg) -- A JPMorgan Asset Management fund that emerged from the fastest stock sell-off in history unscathed is trading April’s febrile markets just like it did in March: hedged to the teeth.

Unlike managers such as the Goldman Sachs investment group who are scooping up stocks in anticipation of a rebound, JPMorgan’s lead strategist for macro is still touting short positions.

“We think we’ll have further volatility as markets really bake in the impact of Covid 19,” Nicola Rawlinson said in an interview.

It’s a strategy that helped notch a return of around 3% for the 4 billion euro ($4.35 billion) JPM Global Macro Opportunities (GMO) fund this year -- and kept it safe during the March crash.

Net of fees, it ended last month with a 0.1% gain. It has beaten 97% of peers over the past three years, according to data compiled by Bloomberg.

Rawlinson is in no mood to join investors rediscovering their bullish nerve sparked by extraordinary policy stimulus and expectations of an economic rebound later this year. With the biggest shock to investment and consumption in living memory, it remains far from clear that prices are cheap enough to cushion a crisis on this scale.

“There’s no one data point that will change the narrative for us,” she said. “We’re watching the impact of how stimulus feeds through to the economy, alongside higher-frequency labor market data such as jobless claims” in the U.S., she said.

The GMO fund has just 5% net equity exposure, with a hefty short position via derivatives. It’s also long yen and gold.

In mid-February, the fund snapped up bearish put options on U.S. stocks as a way to hedge turbulence. But those options expired and replacing them became expensive as volatility spiked. Rawlinson alongside macro fund portfolio managers Shrenick Shah, Benoit Lanctot and Josh Berelowitz started shorting S&P 500 index futures early last month.

Expensive Options

Over at Goldman Sachs Private Wealth Management, the firm also rode the market roller coaster via options. Silvia Ardagna, managing director at its investment strategy group, is now telling rich clients that U.S. stocks still offer the best returns.

“First we went long the S&P 500 derivative structure, then we went outright long the S&P 500 to position for the uptick,” Ardagna said in a phone interview.

At Russell Investments, senior portfolio manager David Vickers is cautiously boosting equity exposure even as he warns markets could easily retest their lows before a recovery takes hold.

His 1.31 billion pound ($1.62 billion) Russell Investments Multi-Asset Growth Strategy Sterling fund has built up a 32% position in equities, up from 27% at the March bottom.

Strong Bounce

“If we don’t reallocate to risk at the right time, we won’t come out of this period stronger,” he said by phone. “There’s a very strong chance of a very strong bounce coming out of this if the virus does indeed peter out or some kind of vaccine comes to pass.”

Back in January, Vickers had 45% of the assets invested in stocks, but added hedges ahead of the market rout, including puts on the S&P 500 Index. He also increased government bond positions and boosted exposure to the Japanese yen.

The strategy lost 8.1% in March and is down 10% this year. While Vickers remains cautious, like Rawlinson he’s also wary of using the options market for hedges.

“We only use protection when pricing is appropriate,” said the Russell manager. “With volatility this high options are expensive.”

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