GMO’s Global Macro Hedge Fund Sees Further Declines in Stocks

By Malcolm Scott

April 8 (Bloomberg) -- Global Tactical Trust, a hedge fund run out of Australia by Boston-based Grantham Mayo Van Otterloo & Co., is betting the recent rally in stocks will end, and is avoiding high-risk investments.

The hedge fund that invests based on global economic trends returned 13 percent last year, when the industry posted average declines of 19 percent, by wagering against equities and backing bonds. Managed by Jason Halliwell, the fund is long the U.S. dollar, yen, U.S. Treasuries and gold, expecting them to rise, while remaining neutral on equities.

“We do think there’s a good chance of another leg down in the market,” Halliwell, whose team manages a total of A$1 billion ($708 million), said in an interview in Sydney yesterday. If profits in the U.S. reporting season disappoint, “there’s very strong chances that this bear market rally will turn around and we’ll see new lows.”

The Standard & Poor’s 500 Index rallied almost 20 percent from its lowest in a dozen years on March 9. It slid for a second day yesterday after investors including George Soros said more declines lie ahead.

GMO, started in 1977 by Jeremy Grantham, manages about $10 billion in hedge funds. Grantham, nicknamed a “perma-bear” by colleagues because of his grim view on stocks for more than a decade, urged investors in a March 4 commentary to start moving money from cash to stocks before “rigor mortis” sets in.

Global Tactical Fund uses mathematical and statistical models to make investment decisions, then bets on widely traded derivatives to profit from calls on global equities, bonds, currencies and commodities. The fund has A$82 million in assets, according to Bloomberg data.

Profits Fall

Profits at S&P 500 companies probably fell 37 percent on average in the first quarter, according to estimates from more than 1,700 securities analysts compiled by Bloomberg. That would be the seventh straight quarter of declining earnings, the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.

“There’s good long-term returns for buying risk assets like equities at the moment, but they’re not great returns, and that’s balanced against some pretty substantial risks,” Halliwell added.

Hedge funds are investment pools that can bet on falling as well as rising asset prices. Their managers gain substantially from profits on money invested.