Elstern Park Model Portfolio
The Macro Fund
The Macro Fund is a highly concentrated exposure to key global themes, and seeks to provide long/short exposure to primary asset classes including equities, bonds and commodities. The Macro Fund typically avoids any stock-specific exposure, and allocates long/short based on global, regionally-specific themes.
Granted, we admit that the name is boring, although we at Elstern Park try to ‘get to the point’ and focus on generating returns for our accounts, rather than musing over fancy sounding monikers. Hence, the arrival of the Macro Fund. We have removed the inclusion of the ‘Model Portfolio’ from moving forward.
Macro Fund vs ACWI ROI Since Inception
We are, as outlined in our Inaugural Whitepaper, and in all correspondence thereafter, committed to the thesis that a financial regime shift is upon us, and tectonic movements in market dynamics will provide an abundance of opportunity.
This ‘regime shift’ is centred squarely around two primary forces, (1) Inflation and the resultant CB Interest rate policy responses and (2), Geopolitical issues and their affects.
As we have stated for several quarters, the incredible level of ‘covid stimulus’ injected by governments globally, compounded an already extreme level of debt burden and money supply across all major markets. The arrival of inflation was a certainty, and it was never going to be transitory. In fact, quite the opposite.
As white-hot inflation arrived into major financial centres, particularly the EU, UK and US, the response from Central Banks has seen the most aggressive rate raising program in human history.
This action has unsurprisingly seen equity markets roil and begin to gain momentum to the downside. Bonds have been hammered, and as outlined above, the 60:40 approach is well and truly dead and buried, for now.
There is simply too many (negative) first and second order affects that will appear as a result of this diabolical interest rate environment shift to outline in this newsletter, although as we focus on the development of the Elstern Park Macro Fund, we have maintained a short position in equities via major ETF’s, across Europe and the US.
The inflationary and CB policy drivers of our thesis naturally intersect with the geopolitical considerations at numerous points, if not simply for the globalised nature of international markets and trade, but for the concerted weaponization of monetary and fiscal policies of opposing national interests.
See the full performance snapshot in our quarterly newsletter using the link below.
In keeping with the approach applied to the Resources Fund, the Macro Fund utilises a high-conviction, and high concentration approach into very specific segments.
Macro Fund vs ACWI ROI — Q4 2022
Macro Strategy vs ACWI ROI — Since Inception per quarter
Total ROI Since Inception
Resources Strategy
-4%
ACWI Benchmark
-0.8%
The Macro Fund is exposed to long to energy and the primary soft-commodities, with Nat Gas being the lynch-pin of the energy exposure.
Oil has been disregarded, simply due to its proxy as a barometer of global growth, which we expect, even in the face of war and geopolitical manoeuvring, will outweigh these impacts. Conflict will certainly put upward pressure on Oil at times, although the significant deceleration of global trade will, in our opinion, far exceed any ‘conflict premium’.
Nat Gas has also been selected due to its inextricable link to the Russia-Europe conflict, which is fact becoming a global ‘war’, of sorts. Nat Gas, as the primary ingredient in fertiliser production is likely to be used as a wat-time lever, with supply being constrained during the European growing season, followed by the European winter.
We are reminded of Henry Kissinger’s infamous comments of 1972 “Who controls the food supply controls the people…”
Soft commodities are a major element of the Macro Fund’s construction.
We believe that a significant food crisis is set to descend upon the world, with the poorest nations most likely to suffer most terribly, further exacerbating global growth and conflict.
Although many talking heads would like to suggest that ‘climate change’ will affect global crop-yields, the data does not prove this to be correct, in aggregate. Rather, the extreme increases in fuel costs, the lack of fertiliser and associated agricultural chemicals and broken supply chains will combine with the primary Russian supply source being effectively taken off line, particularly into European markets.
In summary, the Macro Fund takes exposure to a central view of increased conflict, poorer outcomes for global trade generally, and the interplay between energy and food supply — with the additional consideration of rapidly escalating European-Russian war creating an uncomfortable symphony of long and short investment and trade opportunity.
This is where the benefits of an actively managed, mean-reversion strategy, trading both long & short, seeks to deliver significant out-performance for Elstern Park clients.
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