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Top macro hedge fund sees monetary easing as boon for stocks

Tuesday, February 23, 2016 - 07:34

[SINGAPORE] Managers of the PruLev Global Macro Fund, which has beaten all industry peers since its inception four years ago, says the gloomy global economy may be a boon for stock investors.

Central banks will be forced to add to monetary stimulus to keep economies humming, providing a boost to developed-market stocks, said Norman Tang, who runs the fund with Deputy Fund Manager August Li. Among the investment opportunities that they find attractive are the Russell 2000 Index of small-cap shares in the US, which will benefit from low interest rates while showing less correlation with global stocks, according to Mr Tang and Mr Li.

"When economic fundamentals get worse, the central banks have to act, whether they want it or not," Mr Li said in an interview in Singapore. "We believe that could happen over the next months again."

Many central banks around the world are expected to provide markets with more liquidity or delay monetary policy tightening as China's slowdown is crimping global growth and a decline in commodity prices tempers inflation.

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The Federal Reserve last week hinted at lower forecasts of growth and inflation, while European Central Bank President Mario Draghi has said that lower oil prices and market turbulence may prod the bank to take action to revive inflation. The Bank of Japan last month cut interest rates below zero.

TOP RETURNS

The fund's 66 per cent annualized return since it started in February 2012 to the end of January makes it the best-performing macro pool globally during that period, according to Singapore- based data provider Eurekahedge Pte.

The easing by the Japanese central bank spurred a rally in fixed-income assets that helped the fund surge 9.4 per cent last month as global peers tumbled, with the Eurekahedge Macro Hedge Fund Index declining 0.4 per cent.

PruLev managed to "secure a respectable gain after a really violent beginning," to the year, according to an investor update. Gains from bonds in the US and UK enabled the fixed- income portion of the fund to advance 29 per cent in January, offsetting a 17 per cent decline in equity holdings for the month, according to the update.

"With more qualitative and quantitative easing coming our way, more gains are expected from the fixed income asset class in the coming months," the managers wrote in the letter.

MARKETS TUMBLE

Global stock markets have tumbled since the beginning of the year, with the Standard & Poor's 500 Index down 6.2 per cent, the Stoxx Europe 600 Index falling 11 per cent and the Russell 2000 also declining 11 per cent.

The Bloomberg US Treasury Bond Index has returned 3.5 per cent since the beginning of the year and the Bloomberg UK Sovereign Bond Index has advanced 4.6 per cent.

PruLev is avoiding stocks in Malaysia and Australia, which is being affected by the plunge in commodity prices.

PruLev, which started with US$7.2 million of assets in 2012, managed US$55.5 million as of end of January.

The vehicle, which runs on the platform of Singapore-based Swiss-Asia Financial Services Pte, will open to outside investors from March 1 and present its strategy publicly for the first time at an event hosted by Swiss-Asia on April 7.

Unlike many other hedge funds, which bet on economic developments by taking highly concentrated positions, PruLev selects each investment and its leverage by how much it adds to the overall portfolio risk, said Mr Tang, who previously was head of market risk analytics at Standard Chartered Plc.

The fund employs long and short investment strategies in stock index futures, commodity futures and bonds, mainly in liquid developed markets. PruLev returned 31.4 per cent last year, with about half of its return coming from a short-term investment in the Swiss stock market index.

The fund added to the index after it fell more than 10 per cent following the Swiss central bank's decision to drop its cap on the franc in January last year, and benefited when the index rebounded.

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