London-based hedge fund manager Russell Clark, the founder of $2.75 billion Horseman Capital Management, says that he’s more uncertain about the direction of the market than at any time he can remember.
Horseman is among the best-performing hedge funds in 2016. Horseman Global, a $1.06 billion fund comanaged by Clark and Bobby Turnbull, was up 11.31% through February 24, according to data from HSBC. The fund was one of the 20 best performers in 2015, ending the year up 20.42%.
Here’s an excerpt from Horseman Global’s January updates seen by Business Insider (emphasis ours):
I spend most of my time, while looking at current prices, thinking about and trying to live six months to one year in the future. Thinking about what will be the reaction to what is happening now, and then thinking about what that means future prices might look like. Generally that has worked well for me.
What I can see now is that US growth is slowing, and that the market is likely to price in reduced monetary tightening. This should lead to a weaker dollar. This makes shorting Europe and Japan very appealing. Theoretically, this should make commodities and emerging markets (‘EM’) attractive, particularly if you are of the view that US dollar strength is the reason emerging markets and commodities have been so weak. However, I think we have chronic oversupply of commodities, and real financial issues in China that cannot be resolved easily. This makes commodity related areas very unattractive, despite the prospect of renewed monetary easing by the Federal Reserve. Furthermore, the reaction to reduced tightening by the Federal Reserve, would almost certainly be more easing by every other central bank in the world. But as we have seen recently with both the ECB and BOJ, monetary activism is not always effective. I also worry about the prospects of a trade war, as populism becomes the new normal in politics globally. The future for me is now more uncertain than at any time I can remember. Or to fully quote the Chairman of the Board from Margin Call, “I’m here to guess what the music might do a week, a month, a year from now. That’s it. Nothing more. And standing here tonight, I’m afraid that I don’t hear – a – thing. Just… silence.”
The “music” in this case refers to the mood in the markets.
Most of Horseman Global’s gains this year have come from its short book as well from bets on currencies and bonds. The fund has remained long bonds and short equities, the investor update said.
Since Horseman’s inception in February 2001, the fund has achieved annualized returns of 14.79%, according to HSBC. The fund had down years were in 2009 and in 2011, when the fund fell by 24.72% and 2.99%.
Watch the “Margin Call” scene Clark references below: