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Down, But Not Out

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Stockholm (HedgeNordic) – After years of muted performance, many discretionary and systematic macro strategies have enjoyed a breakout year so far in 2022. Other macro funds, such as Lars Tvede’s themes-focused Atlas Global Macro, have struggled in this year’s market volatility. A significant allocation to Russian assets that had been made before Russia invaded Ukraine turned things from bad to worse.

Launched in May 2021, Atlas Global Macro is a global macro-focused fund based on themes, employing a long-term-oriented and directional approach with a tactical overlay, according to founder Lars Tvede. The fund is down about 32 percent over the first eight months of 2022 and has lost a cumulative 40 percent since inception. “Many of our core long-term theses have been trading extremely ‘choppy’ since the fund went live,” explains Tvede. “They have worked, then turned, worked, then turned again.”

“Many of our core long-term theses have been trading extremely ‘choppy’ since the fund went live.”

One of Atlas Global Macro’s core long-term convictions was the outperformance of value versus growth, which Tvede and his co-portfolio manager Jakob Due could not capitalize on during the first months of 2021 due to a delay in the fund’s launch. “The launch of Atlas Global Macro initially got delayed by almost half a year due to a backlog of fund applications at the CSSF,” says Tvede. “This was unfortunate as one of our core long-term convictions – outperformance of value vs growth – did very well in the first five months of 2021, before the tide turned in growth’s favor again for the rest of 2021,” he continues. “It has been a historically difficult market for us to navigate, but we still believe that conditions will eventually fall into place for a more sustained multi-year value-based trend to be established.”

Positioned for a Post-2002 Environment, and Russian Exposure

Lars Tvede and his team at Atlas Global Macro believe the market environment in 2022 in many ways resembles the market of the early 2000s. “Back then, the dot-com bubble had just peaked, the dollar was exceptionally strong, and emerging markets and commodities were undersupplied and heating up,” recalls Tvede. “What happened in the following 6-7 years was a complete reversal of the prevailing investment paradigm,” he elaborates. “The dollar entered a multi-year bear market, value stocks massively outperformed growth stocks, emerging markets massively outperformed developed markets, and commodities as well as commodity-producing companies and countries outperformed the general stock market.” The Russian stock market, in particular, rose by about 54 times from 1998 to 2008, emphasizes Tvede.

“The portfolio has been constructed to benefit from a shift in the markets similar to the one in the 2000s, but unfortunately, Russia was part of our strategy.”

Atlas Global Macro’s portfolio, therefore, “has been constructed to benefit from a shift in the markets similar to the one in the 2000s, but unfortunately, Russia was part of our strategy,” acknowledges Tvede. The fund has been holding a large position in Russian equities through ETFs listed in the US and EU. The fund’s administrator has written down the value of these ETF holdings to zero or close to zero following “Putin’s incomprehensible invasion of Ukraine,” says the founder of Atlas Global Macro. “Never in my 40-year investment career have I experienced that an entire country’s stock market was completely written off. In essence, we now have approximately 25 percentage points NAV listed as worthless in our official NAV data.”

The What-Ifs

The large bet on Russian securities has subtracted 23.4 percent from Atlas Global Macro’s performance year-to-date. The portfolio ex-Russian assets has lost 8.9 percent in a challenging market environment where stocks and bond suffered their worst first-half performance since 1932 and 1788, respectively. “While the fund’s holding of Russian assets has been written down to zero or close to zero, the underlying assets are still trading on the Moscow Stock Exchange,” says Tvede, “with the limitation that investors from countries deemed ‘unfriendly’ cannot trade.”

“If you look at how these equities are doing in Russia and what the Ruble has been doing, we actually have a theoretical gain on the position in spite of the war. But as it is now, we cannot access that gain, which is why it is listed as worthless.”

Given the current stock market prices on the Moscow Stock Exchange and the official exchange rate of the Russian ruble against the Euro, Lars Tvede and his team estimate that the fund’s Russian assets are worth around €60 million, equivalent to a net asset value of €25 per unit compared to the current NAV of around €60. “Of course, if you look at how these equities are doing in Russia and what the Ruble has been doing, we actually have a theoretical gain on the position in spite of the war,” says Tvede. “But as it is now, we cannot access that gain, which is why it is listed as worthless.”

Another impact of the Russian debacle has been the implementation of a ‘soft close’ for Atlas Global Macro in order to protect existing investors’ interests. “We currently do not accept new investments into the fund as new money would water down the existing investors’ share of the fund’s holding of Russian assets,” explains Tvede. To enable the process of attracting new capital, the Atlas Global Macro team plans on launching a second fund that will replicate the existing fund excluding the exposure to Russia. “This will allow us to take in new investments again – something that several family offices have expressed interest in,” says Tvede. “Eventually, when the Russian assets trade at fair prices again, the two funds can be merged without any detrimental effects on our existing investors.”

Current Positioning

Atlas Global Macro is holding onto their core holdings of metals and mining companies, oil and gas companies, Chinese tech stocks, Vietnamese equities, and Greek banks. In addition to these equity positions, the themes-focused macro fund also has direct commodity exposure corresponding to about seven percent of the fund’s portfolio. “When inflation makes a convincing move lower, and the Chinese zero-covid policy is faded, we believe that these positions are poised to outperform the general market and the conditions are likely to fall into place for a sustained trend similar to the trend from 2001/2002 to 2008, which our portfolio is positioned to benefit from,” expects Tvede.

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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