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How not to lose money in global macro

How not to lose money in global macro

The biggest opportunity in the global macro sector is to not lose money, according to Bellevue’s Lucio Soso.

Speaking to Citywire Selector, the global macro manager said he is taking a conservative stance, which is shown through his allocation to US, Italian and German government bonds.

‘On one side we have an economy that is growing where interest rates are still very low, making it a good environment for equities. But we have had a bull market for the past eight years and valuations are clearly demanding in all asset classes,’ he told Citywire Selector.

Citywire AA-rated Soso, who runs the Bellvue BB Global Macro fund, said the team have been increasing bond holdings in the fund but said he is approaching the sector with caution.

'Over the past three to six months we have had a rally in bonds and we expect there to be some weakness there. We lightened up our bond exposure at the beginning of the year, we were around 120% and went as low as 50-60%.

'We are now starting to increase it again, at the beginning of the year we were much more positive on bonds and now we are much more cautious.'

Bond themes

Soso said equities, bonds, corporates and other emerging bonds are on the expensive side and there has been a general trend towards tightening.

'It started a few years ago in the US with tapering and then the interest rate rise, but we have also started to see this in Europe. The general trend is clear, the demand in valuations plus a rise in interest rates means that we are coming to a difficult part of the cycle.'

In order to get through this difficult cycle, Soso said the fund usually holds an average exposure of around 80% to bonds.

'Bonds tend to perform less in a period where interest rates rise, but they are still very useful in a portfolio, even when rates increase. That’s why we stick to the bonds when most investors are focusing on rising rates and are rushing out of the sector.

'The typical duration of our portfolio will be between five-to-seven years, which is higher than similar strategies.'

Data shows Soso currently has five of the fund’s top positions in short-dated German government bonds. However, Soso said this position is a move to make the portfolio as liquid as possible.

Stock Size
Germany 0.000% 15-Dec-2017 12.41
Germany 0.000% 16-Mar-2018 12.12
Germany 0.000% 15-Sep-2017 11.15
Germany 0.000% 15-Jun-2018 9.34
Germany 0.000% 14-Sep-2018 7.49
Germany 0.000% 16-Jun-2017 7.11
BB Biotech AG ORD 1.96
Repsol Intl Fina 4.500% 25-Mar-2075 0.94
Argentina 7.820% 31-Dec-2033 0.9
JBS Investments 6.250% 05-Feb-2023 0.7

'If we ever had to liquidate the fund, the percentage that is in short term German bonds could be gone in terms of seconds.

'Also the futures can be liquidated in terms of seconds, this is while most funds in the sector tend to invest most of the cash into short term financial debt or other debt of riskier issuance, in the sense of redenomination risk.'

Over the three years to the end of June 2017, the Bellvue BB Global Macro fund returned 14.1% in euro terms in the global macro sector. This compares with a 3.9% sector average over the same time period.

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