The Warburton Global Fund returns 64.1% in 2017

KEY TAKEAWAYS:

• Series 1 units of the Warburton Global Fund gained 15.9% in December 2017. The NAV of the fund is $2.42 per Series 1 unit.
• Total Return 142%
• Annualised Return 66%
• Annualised Volatility 29%
• Sharpe Ratio* 2.21
• % Positive Months 76%

*Risk-free rate is the AUD 3-month Bank Bill rate

December was a buoyant month for the global financial markets. Equity indexes registered gains around the world. Government bonds were up in aggregate. The US yield curve continued to flatten as US Treasuries lost value at shorter maturities but gained in value at longer maturities. Commodity markets surged, with oil, precious metals and industrial metals all rising in price. The metals used in electric vehicle batteries soared in price, with nickel up 15% and cobalt up
12%. The AUD rose significantly against the USD. Bitcoin finished the month up 44%.

The Warburton Global Fund generated another strong month of performance. Both our quantitative portfolios had a great month, continuing the consistency in performance we have seen all year. In the discretionary portfolio, the fund generated large gains from a long position in Bitcoin. From our discussions with product issuers and market participants, our macro thesis was that the price would appreciate leading into the listing of the CME Bitcoin futures. Our thesis proved correct and we were able to sell our entire holding the day before the Bitcoin price reached its all-time high of US$19,666 (a staggering 103% increase on the previous month’s closing price). The Bitcoin price subsequently declined to finish the month at US$13,977. On the information at hand, we believe that all the near-term macro-thematic drivers of Bitcoin have now played out and that prices across the broader cryptocurrency space may be reflecting more optimism than is currently warranted.

At the end of 2017, we see many US economic data points that are at their best levels in years. Most notably, the unemployment rate of 4.1% is the lowest since 2000, consumer confidence is at its highest since 2004 and the ISM Manufacturing Index is also at its highest since 2004. Yet, despite this backdrop, the Fed only hiked rates 3 times in 2017, to a year-end range of 1.25% to 1.50%. After subtracting inflation (core CPI of 1.70%), this leaves the real effective Fed funds rate
in negative territory, where it has been for the last 115 months. This is by far the longest period of easy money in modern history. The previous longest streak of easy money ended in December 2004 at 39 months. That policy was widely considered one of the primary causes of the US housing bubble.

The Fed is not alone in this pursuit of easy money, as evidenced by every developed country central bank in the world maintaining negative real interest rates in the 8th year of a global expansion. It should come as no surprise then, to have seen housing prices around the world significantly outpace gains in income (and reported inflation) over the past eight years by a wide margin. Additionally, oil ended 2017 above $60. From its low of $26 in February 2016, it is up over 130%. The crash in oil from 2014 to 2016 allowed central banks to continue to pursue extreme monetary policies (negative real interest rates) under the guise of deflation. Now that oil is on the rise again, one wonders if we will begin to see a reversal of such policies in 2018. Furthermore, in another sign of global reflation, the Bloomberg Commodity Index finished up again in 2017, its 2nd straight year of gains (2016 – 2017), after 5 straight years of losses (2011 – 2015).

We appear to be at an inflection point in global monetary policy and 2018 is shaping up to be a year full of great opportunities for our global macro strategy.

 

 

About Warburton Investment Management

Warburton Investment Management manages client capital via the Warburton Global Fund, a global macro hedge fund that deals in international investments. The fund invests in public equity, fixed income, currency and commodity markets worldwide.

Founded in 2015, Warburton Investment Management is one of the best performing firms in the hedge fund industry, with a mandate to target annualised returns of over 30%.

Request Offer