(The opinions expressed here are those of the author, a

columnist for Reuters)

By Jamie McGeever

ORLANDO, Florida, May 8 (Reuters) - While many investors

survived the market volatility unleashed by U.S. President

Donald Trump's "Liberation Day" with only a few scratches, macro

hedge funds suffered one of their worst maulings in years.

HFR's benchmark composite fund index fell by only 0.5% in

April and the equity index actually rose, according to data

released on Wednesday, but macro strategists were caught

flat-footed by the steep declines in the dollar, oil, and

short-dated Treasury yields and whiplashed by a brief, but

historic, selloff in long bonds.

Consequently, Macro hedge fund strategies lost 2.7% in the

month, according to HFR, equaling the losses in March 2023 amid

the turmoil caused by the U.S. regional banking crisis. The last

time macro strategies had a worse month was February 2018 due to

the "Volmaggedon"-fueled market turmoil.

Macro funds suffered, in part, because April marked a sharp

shift in correlations between several asset classes - including

abrupt reversals in some markets and accelerated moves in others

- as well as a surge in margin calls and huge shifts in capital

flows as many investors reduced their U.S. allocations.

BIG SHORT

At the start of April, hedge fund managers' positioning in

the dollar was roughly flat, according to Commodity Futures

Trading Commission data. They had unwound net long dollar

positions worth around $35 billion in the prior two months as

the greenback fell 4% against a basket of major currencies.

Macro funds started to rebuild their longs in the first week

of April, but any hopes of a dollar rebound were obliterated

following Trump's tariff announcements on "Liberation Day". The

dollar fell 4.5% in April, its steepest fall since November

2022, and the euro sealed its best two-month performance since

2010.

CFTC data also shows that leveraged funds extended their

short positions in two-, five- and 10-year Treasury futures. The

$1.0+ trillion short position, in aggregate across the three

maturities, is now the highest this year, and in the five-year

contract it is the biggest on record.

Funds take these positions for many reasons such as hedging

and arbitrage plays. But those making a directional bet on rates

got burned - yields fell in April, particularly at the short end

and the belly of the curve.

'SO MUCH UNCERTAINTY'

Macro funds' hefty losses underscore investors' deep

confusion about U.S. policy and, by extension, the outlook for

asset classes across the board.

JPMorgan's quant and derivatives strategists say macro fund

managers were actually penalized for remaining cautious. They

were not prepared for the 'V-shaped' recovery in equities and

other risk assets in recent weeks, so the recovery in macro

funds and commodity trading advisors (CTAs) has been "modest"

with "little sign of a reversal", they wrote on Wednesday.

This contrasts with equity-focused funds who de-risked in

February and March and were thus well positioned for the rapid

rally seen in the last few weeks, they added.

But trend-following macro fund managers could be forgiven

for retaining a "glass half empty" outlook. Trade tensions are

stoking inflation and unemployment risks, and Federal Reserve

Chair Jerome Powell on Wednesday basically admitted that he and

his colleagues have no idea what the correct policy response

should be because visibility is so low.

"There's so much uncertainty ... there's so much that we

don't know," Powell told reporters after the central bank left

interest rates unchanged, a message he drove home in many

different ways during his 41-minute press conference.

He isn't alone. Consumer sentiment is nose-diving,

businesses are scrapping forecasts and investor conviction is

running low even as markets have stabilized in the last few

weeks. Macro hedge fund managers' confidence may simply be

running lower than most.

The 2.7% fall in HFRI's Macro Index last month wiped out all

its gains from the first quarter. A sustainable rebound will

almost certainly require longer-term trends and correlations to

emerge across currencies, rates and commodities. Right now, that

looks like a long shot.

(The opinions expressed here are those of the author, a

columnist for Reuters)