Many hedge funds bet big against the euro and in favour of the US dollar and although they were ultimately correct in terms of these currencies diverging, the trading of this relationship has proven painfully volatile. Many hedge funds have been caught off guard by brutal swings and reversals that resulted in a number of them losing their nerve.
“2015 simply hasn’t lived up to expectations,” says Julien Calavia of Aberdeen Asset Management, which invests in hedge funds. “People late last year were expecting a lot from macro hedge funds due to Fed and ECB going in different directions. But the Fed delayed and this led to a choppy market that doesn’t suit macro managers.”
Oh, I’m so dumb. I thought the problem was too little volatility and not enough trading opportunities. Now its too much volatility and too many trading opportunities.
An unusual period of calm has exacerbated problems for many trading strategies dependent on volatile markets. The losses by these so-called macro investors are contributing to a trading slowdown hurting the largest investment banks.
Think I got it now – so if we’re investing in “global macro” funds, we don’t want too little volatility, but we definitely don’t want too much either.
Hopefully, the Goldilocks Volatility is coming our way soon. Can I get anyone a drink while they wait?