Tycho Calibrate Macro Fund

Overview

The fund employs a global discretionary macro strategy, trading across global rates, FX, commodities, equity indices, and sectors in multiple geographic regions. Unlike most macro funds, the strategy’s investment process does not begin with the formation of an economic view or outlook. Instead, it starts with modelling asset price behaviour and fundamentals to identify exploitable investment opportunities arising from macroeconomic and market dislocations driven by asset class features, positioning, market structure, investor behaviour, and regime shifts across global markets.

Strategy & Manager

Performance

Commentary

Investment Manager’s Commentary

The Strategy lost -0.9% in September. Losses were concentrated in front end rates in UK, and in German bond futures. Positive returns were generated by short positions in 10-year treasuries. Equities added 50bps to returns, due to strong performances from trading, relative value and mega cap single stock selection. Our long BRL/short ZAR position also contributed positively.

Outlook
The last three months have been challenging for the strategy. Bond and interest rate markets are being pulled in multiple directions, depending on whether the markets focus is on the oil price, credit risk in Eurozone sovereigns, AI capex as a cyclical stimulus, or AI leverage as a potential credit market event.

We have spent the last three months focused on capital preservation and opportunistic trading. In equities, our core positions have worked. In bond and interest rates, markets have moved aggressively against us. Keeping losses contained when you are wrong is a critical test of one’s risk management.

As a portfolio manager, there is something dissatisfying about running at 20% or 30% of your risk budget, but this is often wise if daily moves in portfolio returns exceed what you expect, or correlations are entirely unstable from one day to the next. That has been the prevailing environment for the last three months.

We discussed the outlook for bonds in a recent research note. Price action since then has confirmed our view. The last five years have been characterised by left-tailed risk events associated with inflationary shocks – the Ukraine war, tariffs, and the war in Iran. Bonds have behaved like risk assets. However, the large shift higher in the yield curve and widening credit spreads is eventually self-correcting – things break. And when they do, markets are reminded that left-tail deflationary shocks are just as probable. We have now woken up to two: a potential Eurocrisis 3.0, centred around France, and a credit event in US markets centred around AI-related borrowers running out of free-cashflow. The bear market in bonds could see a profound and abrupt reversal.

In equity markets a sea-change may also be occurring. We have discussed the AI bubble at many points in time over the last 18 months – and we have profited a great deal trading it from the long side. However, as we alluded to in last month’s report, we believe the distribution of outcomes is now far more symmetric, and markets are waking up to the left-tail where credit markets could trigger a financing problem for capex, deflation in AI could result in disappointing revenues, and the mismatch of investment supply and demand could cause an investment downturn. It is early days in this process – but the volatility caused by the emergence of a symmetric distribution of narratives is now coming to the fore.

This is a very rich environment for macro. The crosscurrents we have seen in markets over the last three months, which are inherently tricky to navigate, may well break more decisively in one direction in the next three to six months. This should deliver the kind of volatility we enjoy.

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