January was a tough month for hedge fund managers across the board, which makes Balestra Capital Partners’ return that much more impressive.
Last month, James Melcher’s $450 million global macro fund climbed 9.7%, following an astonishing gain of almost 200% earned last year by shorting subprime. By comparison, the Absolute Return Macro Index returned a paltry 0.08%, and the Composite Index experienced its third worst month since 1998.
The fund’s returns were lifted, in part, by continued profit-taking on short subprime positions. Melcher has now sold almost all of the fund’s credit default swaps on collateralized debt obligations. His negative outlook on credit markets is expressed using single-name CDS and various swap indices.
Melcher expects certain equities to deteriorate also, and last month he added to short positions in retailers, financials, and emerging markets. In January, he reduced the fund’s large...