zerohedge.com / by Tyler Durden / Jan 11, 2017 1:48 PM
From everyone’s multi-strat wizard, the head of RBC’s cross-asset strategy, Charlie McElliggott
The Single Largest Macro Risk To The Buyside
The US Dollar is the “grand unifying theory asset” for nearly any and all “profile” global macro or thematic equities trades in the marketplace right now, as it represents investors being long this “new” version of “economic growth.” As such, performance is significantly tied to the direction in the US Dollar.
SO THEN…let’s take it back to the “January Effect.” I’ve been doing a bunch of client marketing this week, with the ‘meat’ of the discussion being largely centered upon buy-side concerns surrounding said “seasonal mean-reversion” metastasizing into something larger. I qualify this as “something larger,” because at this time, NONE of the YTD performance reversals from Q4 have been outright PNL destroyers. Sure, popular shorts like USTs / ‘long duration,’ EM stocks, gold and equity ‘growth’ factor are all squeezing higher out of the gates—but by and large, so too are popular longs like small cap equities, inflation, copper, ‘high beta cyclical’ equities, ‘value’ factor and HY.
The fact is, there has been a ton of money made / performance driven by, for example, ‘long Russell 2k’ vs ‘short USTs’ / ‘short ED,’ or being long equities ‘value’ against short equities ‘growth’ since back mid 2016 when we began seeing positioning pivot this way (and accelerating post-Trump). But the problem is that for many, much of that positive PNL was booked last year. So an ‘upside-down out of the gates’ January is more than inauspicious—it’s an outright “non-starter” for risk managers in light of the performance-challenged era of the past few years. Fund willingness to stomach slow starts in January to begin the year—especially in light of the proliferation of ‘tight stop’ multi-managers with a massive institutional AUM concentration, and a pod / center book structure which exacerbates crowding—can “turn wrong-way fast” when CRO’s become de facto heads of trading into potential deleveraging.