(Bloomberg) — Aspect Capital Ltd.’s computer-driven trading models are thriving from the uncertainty that has many human investors ripping up their big macro calls.
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The $7.5 billion London-based hedge fund has seen a 21% year-to-date return in its flagship fund, thanks to bets on currency markets and commodities, according to its director of investment solutions Razvan Remsing. That beats the average 14% return for its trend-following peers and 3% for discretionary macro managers, based on Societe Generale SA’s indexes.
Unlike traditional funds that trade based on directional macroeconomic views, Aspect’s models are designed to follow the market. It’s a type of investing that has flourished this year, as the consensus on US interest-rate cuts coming into 2024 crumbles.
The fund is profiting from positioning for a stronger dollar, as markets veer toward Federal Reserve rates staying higher for longer. By contrast those sticking to their macro views have suffered, as traders slash bets on US rate cuts to just one or two in 2024, down from expectations for six early this year.
“Inflation rates go up like a rocket and down like a feather, so it’s not going to be a clear path forward for the major economies or central banks,” Remsing said in an interview. “The narrative has changed and that dispersion really does play out well in currency markets.”
Aspect Capital’s key positions include shorting the Japanese yen and the Swiss franc — two of the year’s worst-performing major currencies against a resurgent greenback. It’s also been shorting commodity currencies such as the Chilean peso, among the bottom of the pack in emerging markets this year.
In commodities, it’s been steadily trimming a long position in cocoa — which has hit record highs — while adding exposure to gold and oil, both having gained on Middle East tensions.
The firm is shorting US Treasuries and longer-dated European sovereign bonds, though fixed income and equity exposure each only make up around 10% of its total risk contribution, given elevated rates volatility and the opportunities it sees on offer elsewhere.
“Suddenly I’m looking at my portfolio and we are performing really well,” Remsing said. “The majority of our returns are from the dispersion in currencies and commodities.”
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The recent performance marks a sharp turnaround from Aspect’s 1.4% loss last year. That was in line with other trend-following funds, which Societe Generale’s figures showed fell 4.2% on average.
Instead it’s a return toward the 40.5% profit made in 2022, one of its best years since the company was founded in 1997. The firm now employs over 130 people in London, the majority dedicated to building the trading models.
Its positioning means it has been able to skirt the heavy losses that bruised many in the market betting on a weaker dollar and a bond rally. Late last year, investors were piling into fixed income assets on expectations the Fed and other major central banks would all slash interest rates this year.
“We no longer have this coordinated global policy, which was really a result of the plumbing of the financial markets being clogged following the Global Financial Crisis,” said Remsing. “Now it’s uncertain everywhere, and against that backdrop our strategies being unfitted and reactive as opposed to predictive, we’ve got plenty of breadth to harvest.”
(Updates with industry performance details.)
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