(The opinions expressed here are those of the author, a columnist for Reuters)

ORLANDO, Florida - While many investors survived the market volatility unleashed by U.S. President Donald Trump's "Liberation Day" with only a few scratches, macro hedge funds suffered one of their worst maulings in years.

HFR's benchmark composite fund index fell by only 0.5% in April and the equity index actually rose, according to data released on Wednesday, but macro strategists were caught flat-footed by the steep declines in the dollar, oil, and short-dated Treasury yields and whiplashed by a brief, but historic, selloff in long bonds.

Consequently, Macro hedge fund strategies lost 2.7% in the month, according to HFR, equaling the losses in March 2023 amid the turmoil caused by the U.S. regional banking crisis. The last time macro strategies had a worse month was February 2018 due to the "Volmaggedon"-fueled market turmoil.

Macro funds suffered, in part, because April marked a sharp shift in correlations between several asset classes – including abrupt reversals in some markets and accelerated moves in others – as well as a surge in margin calls and huge shifts in capital flows as many investors reduced their U.S. allocations.

BIG SHORT

At the start of April, hedge fund managers' positioning in the dollar was roughly flat, according to Commodity Futures Trading Commission data. They had unwound net long dollar positions worth around $35 billion in the prior two months as the greenback fell 4% against a basket of major currencies.

Macro funds started to rebuild their longs in the first week of April, but any hopes of a dollar rebound were obliterated following Trump's tariff announcements on "Liberation Day". The dollar fell 4.5% in April, its steepest fall since November 2022, and the euro sealed its best two-month performance since 2010.

CFTC data also shows that leveraged funds extended their short positions in two-, five- and 10-year Treasury futures. The $1.0+ trillion short position, in aggregate across the three maturities, is now the highest this year, and in the five-year contract it is the biggest on record.

Funds take these positions for many reasons such as hedging and arbitrage plays. But those making a directional bet on rates got burned - yields fell in April, particularly at the short end and the belly of the curve.

'SO MUCH UNCERTAINTY'

Macro funds' hefty losses underscore investors' deep confusion about U.S. policy and, by extension, the outlook for asset classes across the board.

JPMorgan's quant and derivatives strategists say macro fund managers were actually penalized for remaining cautious. They were not prepared for the 'V-shaped' recovery in equities and other risk assets in recent weeks, so the recovery in macro funds and commodity trading advisors (CTAs) has been "modest" with "little sign of a reversal", they wrote on Wednesday.

This contrasts with equity-focused funds who de-risked in February and March and were thus well positioned for the rapid rally seen in the last few weeks, they added.

But trend-following macro fund managers could be forgiven for retaining a "glass half empty" outlook. Trade tensions are stoking inflation and unemployment risks, and Federal Reserve Chair Jerome Powell on Wednesday basically admitted that he and his colleagues have no idea what the correct policy response should be because visibility is so low.

"There's so much uncertainty ... there's so much that we don't know," Powell told reporters after the central bank left interest rates unchanged, a message he drove home in many different ways during his 41-minute press conference.

He isn't alone. Consumer sentiment is nose-diving, businesses are scrapping forecasts and investor conviction is running low even as markets have stabilized in the last few weeks. Macro hedge fund managers' confidence may simply be running lower than most.

The 2.7% fall in HFRI's Macro Index last month wiped out all its gains from the first quarter. A sustainable rebound will almost certainly require longer-term trends and correlations to emerge across currencies, rates and commodities. Right now, that looks like a long shot.

(The opinions expressed here are those of the author, a columnist for Reuters)

(By Jamie McGeever; editing by David Evans)


Reuters