Omni Macro Fund is a discretionary global macro fund trading instruments at the most liquid end of the spectrum. Roughly 50 per cent of the Fund’s positions are in FX (developed market-heavy), with the rest of the portfolio trading commodities, equity indices and front-end rates and bond futures.
Stephen Rosen (pictured) is CIO and Founder of Omni Macro. He says that typically the team runs three to five trading strategies with one to three line items each.
“We bucket our themes into three categories:
• Structural mis-pricing stories
• Cyclical themes
• Opportunistic tactical trading.
“Structural trade origination ideas rely heavily on historical and valuation metrics; we tend to look for themes with convexity. Typically, these can persist for some time, anywhere from one to three years, although we don’t constantly express them in the book,” says Rosen.
Cyclical trade idea generation reflects more typical global macro strategies – inflation, growth data, central bank activity – while opportunistic trading relies on reacting to short-term market information.
There’s a tendency for a cyclical focus to be the largest section of a typical global macro portfolio. The fact that there is less emphasis on these trades as a percentage of the overall book is an important differentiator for Omni Partners.
That said, one cyclical thematic trade that is working well has been exploiting the recent decision by the ECB to engage in QE says Rosen, which is expressed predominantly through a short position on the euro against the Indian rupee and tactically in European equities.
As for structural mis-pricing trading themes, last year Omni Macro looked for Japanese stocks to outperform their European counterparts. The motivation for that was that on a valuation basis the DAX had never been more expensive versus the Nikkei in currency-adjusted terms in its history.
“Our structural trades come with that valuation basis. Our differentiator is putting on more trades that are idiosyncratic and have the ability to generate pure alpha,” comments Chris Morrison, Head of Strategy at Omni.
The themes that Omni Partners develops are fluid and can be expressed in a variety of trades. China, for example, has been an important theme. The overarching belief by Rosen was one of instability in China’s economy based on a set of principals, the most explicit being the level of investment to GDP based on credit finance.
“The next level is applying those principles to identify red flag events, such as changes in Chinese real estate prices and real interest rates. Then, we decide on how best to execute the theme.
“The perception around the RMB at the start of last year was for full-on appreciation. This trade had convexity; based on fundamentals (potential for instability) and also by being a contrarian play,” explains Rosen. Another trade that has worked well in relation to China has been expressing a bearish view on commodities via copper futures.
In respect to risk management, the Fund employs a 3 per cent stop loss. If this is breached, the overall risk exposure in the portfolio is cut by half. The Fund utilises its monthly stop loss as an active tool and has implemented it ten times since inception, during which the Fund has generated attractive returns.
On winning the award, Rosen comments: “since inception in 2007 we have annualised 13% across all different types of markets. We are proud of our track record and highly appreciative that people see the value of our offering.”
