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Making Money the Soros Way

Wednesday, 13 Aug 2008 09:06 AM

While many stock and bond mutual funds have tanked since the credit crisis began last summer, the macro investing style pioneered by hedge fund legend George Soros has proven to be profitable.

Macro hedge funds often try to take advantage of macroeconomic trends. According to Credit Suisse Tremont data, they returned 18.8 percent on average in the year ended in June.

This buoyant return totals five times the hedge fund industry average during that period and bests any other strategy. It's the first time macro funds have beaten their peers in five years.

"Macro investors are torn between two views: we're in something like the 1970s, or we're in something like the 1930s," Christopher Watling, head of Longview Economic research firm in London, tells Bloomberg News.

Macro funds have enjoyed some major themes that brought them riches, such as the seven Federal Reserve interest rate cuts since September as it sought to fight off recession; the surge of oil and other commodity prices; the plunge of financial stocks; and the dollar's weakness.

For macro investors it doesn't matter whether the economy and financial markets are weak or strong, as long as there is a strong trend.

Soros earned much of his acclaim for making $1 billion betting correctly on the British pound's demise in 1992. He also profited handsomely from the Asian financial crisis of 1997-98.

Funds that have thrived over the past year include Clarium, run by PayPal co-founder Peter Thiel in San Francisco, and Brevan Howard Fund of London, managed by Alan Howard.

Clarium soared 47 percent from the beginning of the year through July 25, say two of its investors.

The Brevan Howard fund gained almost 18 percent during the same period.

Howard, who formerly headed proprietary interest-rate trading at Credit Suisse, correctly called the widening spread between short-term and long-term U.S. interest rates. That gap widened as the Fed slashed the federal funds rate to 2 percent.

Brevan Howard expects stagflation to continue affecting the economies of the U.S., Europe, and Japan, according to the firm's latest monthly shareholder report.

"The world continues to go through a period of adjustment from excess and the mispricing of risk," Ian Plenderleith, chairman of BH Macro Ltd., a publicly traded fund that invest in Brevan Howard's portfolio, tells Bloomberg.

"I don't think that it would be remotely possible to say that this is coming to an end."

To be sure, oil prices have retreated sharply from record highs in the past two weeks, and the dollar has rebounded significantly as well, but many experts look for the gloom and doom scenario to continue.

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While many stock and bond mutual funds have tanked since the credit crisis began last summer, the macro investing style pioneered by hedge fund legend George Soros has proven to be profitable.Macro hedge funds often try to take advantage of macroeconomic trends. According...
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Wednesday, 13 Aug 2008 09:06 AM
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