Hedge Funds Q&A: Tom Roderick, Trium Capital

The global economy is being significantly impacted by both macroeconomic and geopolitical changes and issues, and the outlook is arguably as uncertain as it has been for many years. Greg Winterton spoke to Tom Roderick, Portfolio Manager of the Trium Epynt Macro Fund, to get his views on some of these challenges and how to navigate them.

GW: Tom, let’s start at the beginning. What are some of the current issues and / or topics that are top of your mind in terms of how you’re currently approaching portfolio construction?

TR: We are at a very interesting juncture and are going through the most significant change in thinking and positioning since Covid.

We had been more constructive on the US than most during the last couple of years, pushing back against predictions of doom and gloom, positioning for higher rates and inflation. We had been reluctant to stand in way of equity markets, and the AI steamroller, but this is now changing.

We see three key drivers behind US outperformance as fading. These are an openness to trade, cheap energy, and tech dominance during the Web 2.0 era. Ominously, this is happening while liquidity conditions are tightening, increasing the risk of a 2018-style liquidity crunch/sell-off. As a result, we are positioned for lower rates and lower stock prices.

On the other side of the world, we have become more optimistic towards China. We favour long term call options on domestic indices, which are very cheap due to structure distortions caused by the dominance of retail investors in Chinese markets.

In China, there were three main factors that held equities back. Firstly, the prolonged Covid lockdowns, then the suppression of the tech sector, and finally the housing collapse which was really at the heart of the issue. Poor performance made it easy for international investors to dismiss China as un-investable on ‘governance’ grounds. These factors have gone into reverse, Covid is firmly in the rear-view mirror, and we are seeing the CCP embrace the tech barons once more, after the “DeepSeek moment” jolted the industry back into life.

On housing, we have been comparing the situation in China today with the US housing crash of 2006. When you adjust for GDP, the fall in house prices in China from their peak in 2021 to today has been of a similar magnitude to that seen in the US from 2006 to the 2009 stock market low – potentially a level where a structural rather than tactical bullishness makes sense.

GW: In environments like the one we are in currently – i.e., an uncertain one – how do you look at emerging markets versus developed ones in terms of your allocation?

TR: For macro, uncertainty can often bring opportunity as it becomes hard for market participants to accurately price the path ahead.

We divide our book between DMs and EMs, with China having its own category because while it shares certain EM characteristics, it benefits from DM levels of depth and liquidity. We have historically had significant exposure to the more liquid spectrum within EMs but are currently running modest allocations to a couple of idiosyncratic themes within an overall cautious portfolio.

For example, we have been long Argentine assets, with the Trump-aligned Milei administration enjoying good fortune as they work towards an IMF agreement and the eventual return of international investors.

GW: One of the less-discussed topics in the macro hedge fund space is how managers such as yourselves can play the energy transition trade. What’s your view here?

TR: It is certainly something we have discussed. We have been playing the broad theme of decarbonisation for several years, having identified it as an area of opportunity where political intervention collides with free markets, and creates distortions.

We focused on commodity markets - such as uranium, which has been more of a long play as governments around the world have become accepting of the role that nuclear will play during the transition to renewables, although we are less bullish right now.

We have also been active in carbon emissions markets. In the EU, we were long from 2020 on the view that policymakers wanted higher prices to incentivise spending on decarbonisation. In recent times it has become more of a long/short trading strategy – as is often the case with commodities, we are balancing compelling long-term stories with shorter-term supply and demand dynamics.

It is also an input into our view on inflation. Decarbonisation is an inherently inflationary endeavour involving huge spending for no short-term economic gain. Although, as I mentioned earlier, our view on inflation, or at least higher rates, has started to change – in part due to major cuts to the Biden-era ‘green’ spending commitments in the US.

GW: Discretionary macro funds are often lumped in with diversified systematic CTAs from a ‘bucket’ perspective, but there are, of course, many differences. What are some of the main misconceptions you see from investors here?

TR: Discretionary macro funds trade the same wide range of instruments to CTAs but have a completely different process to identifying trades. Both strategies offer a valuable alternative to long biased equity and bond exposure. When there are persistent and stable trends with readily identifiable macro drivers, the two strategies can be correlated. At turning points, however, discretionary macro funds can be much more aggressive in capitalising on structural shifts.

If you think that correlations and trends will be stable and persistent, then CTAs can have the edge. Where discretionary macro really shines is when relationships and trends become unstable and chaos reigns.

GW: Lastly, Tom, what’s your message to investors in terms of where macro hedge funds should sit in their broader portfolio? Why should they buy them and what should their expectations be in terms of results?

TR: Our objective is to provide investors with a positive return stream that is uncorrelated to the other components of their portfolios.

Macro is seen as a more defensive strategy, given its long history of making money during challenging periods for stocks. We would suggest that it is more than a simple equity hedge, however - given the breadth of the remit to trade across asset classes and geographies, there is always money to be made.

Of course, some environments are better than others. Right now, given the fragile state of the global trading system and fat tails on both the inflationary and recessionary sides, the macro setup is the best it has been since the shock therapy of higher rates was forced onto risk assets in 2022.

Tom Roderick is Portfolio Manager of the Trium Epynt Macro Fund