Photographer: Sam Kang Li/Bloomberg
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Dymon Hedge Fund’s Dollar Bet Yields Bonanza After Trump Rally

  • Currency fund rose 22% last month as Asian currencies weakened
  • Dymon’s flagship macro hedge fund returned nearly 8%

Dymon Asia Capital (Singapore)’s currency hedge fund gained an estimated 22 percent in the first 25 days of November as bets on weaker Asian currencies paid off, with some investors making triple that gain by putting money into a highly leveraged version.

The profits extended returns made by the $714 million Dymon Asia Currency Value Fund this year to nearly 46 percent, said Gerald Chan, the firm’s Singapore-based head of distribution, citing estimates. The money manager’s $3.4 billion flagship Dymon Asia Macro Fund made an estimated 7.8 percent during the same period in November, taking this year’s return to 12 percent, he said.

Dymon joins macro hedge-fund peers such as Brevan Howard Asset Management and Rubicon Fund Management in turning a political shock into profit. Brevan Howard’s $12.7 billion main hedge fund gained 5.6 percent in the first 18 days of November, erasing earlier losses this year, and Rubicon surged almost 20 percent in the same period to return to profit.

The November returns for Dymon came primarily thanks to bearish bets on various Asian currencies, including the Japanese yen, against the greenback, said Chan. The dollar has surged for its biggest monthly gain versus the yen since 1995, on the prospect of President-elect Donald Trump’s proposed fiscal stimulus fueling inflation. The dollar gained 9.1 percent against the Japanese currency last month.

‘Critical Component’

“A critical component of the performance was the portfolio construction going into the U.S. presidential election on Nov. 8,” Chan said. “The portfolio was constructed with one express objective: enabling Dymon Asia Macro Fund to navigate through the anticipated volatility, allowing the fund to stay with its high-conviction short Asian currencies, long U.S. dollar positions.”

Danny Yong, a former Goldman Sachs Group Inc. and Citadel trader, started Dymon Asia Macro Fund with $113 million in 2008, with billionaire-investor Paul Tudor Jones’s Tudor Investment Corp. as his first outside backer. He is the lone manager of the Dymon currency fund.

Yong said he continues to remain bearish on Asian currencies and bullish on the dollar, a view Dymon has held for most of this year, as global trade continues to slow. While the election of either candidate would have led to different degrees of fiscal expansion, the Trump victory is expected to result in robust fiscal stimulus and “U.S.-centric policies,” he said.

“This backdrop provides an attractive trading environment for macro strategies as the market digests the full impact of the massive structural changes ahead,” Yong said, citing an uncertain impact on Asia and the rest of the world.

Concentrated Bets

Macro hedge funds seek to profit from broad economic trends by trading in markets including currencies, interest rates, credit, stocks and commodities. Dymon’s currency fund takes more concentrated bets, focuses on currencies and gold and has less risk constraint than its bigger macro fund.

The Dymon funds entered the month with bearish positions on Asian currencies and bullish bets on gold. They used option trades to allow them to minimize losses should the firm’s views turn out wrong, while enabling them to make outsize gains should their positions be validated by markets. With that, they weathered a rally in the yen as the election outcome crystallized and profited when it reversed course.

The funds also profited from short-term trading and risk management moves as the markets whipsawed on election day. The main macro fund gained 2.4 percent on Nov. 9 by the time the New York markets closed as the yen rally earlier in the day was erased, said Chan.

Dymon switched from a bullish bet on yen to a bearish wager between August and September, after the Bank of Japan indicated that it would seek to steepen the yield curve, said Yong. He cited this as evidence of the government’s intent to remedy the adverse effects of its surprise announcement of negative interest rates in January. Dymon also believed the Japanese currency had become too expensive by August after strengthening more than 20 percent against yuan and the dollar.

Dymon plans to stop taking additional money for the macro fund when its assets hit $4.5 billion, said Chan. It will also cease accepting fresh capital for the currency fund when it hits $1.5 billion, he added.

— With assistance by Nishant Kumar, and Sabrina Willmer

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