Dynamic Alpha Macro Fund (DYMIX): April 2025 Overview

This Month’s Performance

April provided another example of how our dual-strategy approach—pairing U.S. equity exposure with non-correlated global macro positions—can deliver differentiated results. The fund gained 1.91% for the month, outperforming both the S&P 500 (-0.68%) and the S&P Target Risk Balanced Index (0.58%), with gains driven by fixed income and currency positions rather than equities.

While U.S. stocks struggled, our long positions in the 2-year Treasury note, British Pound, and Japanese Yen contributed meaningfully. These exposures are designed not to track the broader equity market, but to capitalize on longer-term structural trends—rising sovereign debt levels, geopolitical fragmentation, and shifting global capital flows. This month’s outperformance was a result of diversification.

Our process remains focused on identifying medium- and long-term opportunities before they are priced in. We believe the environment ahead favors strategies that can adjust across asset classes, not simply rotate within equities. With over 40 liquid markets to trade, we remain agile and conviction-driven, aiming to add value when conventional portfolios face headwinds.

More certainty

Market commentary these days is about “uncertainty”. We are feeling more certain about our views, particularly the views that coalesce over a 3-7 year horizon. What’s happening in the U.S. today could be viewed as the breakdown of the rule of law (at the margin, from the outside world’s perspective). You can sort of feel it as an American as well, but those of us that live in America can only watch with unease. That’s not the case for foreigners, who park funds and invest in the U.S. because the world’s only true empire has always had the proper checks and balances that lead to stability.

So why do we feel more certainty? Some of the core trends we believe in over the next 5-10 years – a secular bull market in gold, 30-year Treasury yields to 8-9%, and a secular bear market in the S&P 500 due to P/E multiple compression – probably seemed like crack-pot notions to many prospective investors as recently as a year ago. Underlying fundamentals (debt, deficits, populism) already pointed in this direction; the first 100 days of the new administration are cementing for us that our core long-term views directionally make sense.

Slowing down and taking stock

Many financial professionals feel an imperative to provide nearly real-time updates, whether daily or hourly or minute-by-minute, given the U.S. administration’s ever-changing tariff announcements. We are doing the opposite: we are almost absent-mindedly following the breaking updates on Trump’s tariff tirades but are paying razor-sharp focus to the medium- to long-term implications.

The macro trading implications are not to be found in having a quick trigger finger in shorting the stock market based on a Trump tweet, but rather in thinking through how the current administration’s actions either support or negate our existing multi-year framework for how to allocate capital.

Heading into Trump’s second term, our baseline expectation was for a mild recession driven by the drying up of consumer stimulus post-Covid and the [very] lagging impact of high interest rates on the real estate sector and small businesses. Based on Trump’s first 100 days:

We are slightly more convinced that we are heading into a 2025 recession. Whether it’s mild or more serious is up for debate. From a trading perspective, you don’t want to base profit targets on the severity of the potential recession. The very mild 2001 recession coincided with a -50% drawdown in the S&P 500 over two years. The more severe 1980 recession coincided with only a -20% decline. Given today’s level of overvaluation, something in between makes sense.

We are prepared for a major U.S. dollar bear market. We already had this notion baked into our modeling, based on the trading history of the U.S. dollar since it was freely floated in 1973. Dollar overvaluation indicated a 30% multi-year adjustment process. What we did not have was a catalyst, which we now do: the breakdown of “trust” between the U.S. and foreign nations. Trust that the US will uphold the rules-based order it created with the birth of a U.S. empire post-World War II.  In recent months, a window into what a U.S. system would look like where checks-and-balances between the judiciary, the legislature, and the executive are eroded.

For a foreign reserve manager in Japan or a pension manager sitting in Frankfurt, it would be irresponsible not to begin to sell down U.S. bonds and stocks and shift more into euros and yen. This process takes years and will underpin a multi-year bear market in USD. This also adds to selling pressure on U.S. equities, where foreigners own $18 trillion of stocks, compared to the $3 trillion they owned in 2010.

There is a need to reduce the weight of USD in global reserve balances. The freezing of Russia’s reserves (freezing is polite language – better to call it outright theft by the US and EU) was the starting gun. The haphazard tariffs, which are better described as economic warfare from the perspective of China, cements our decision to make this call. There is no replacement for the dollar and there may not be another single fiat replacement. But there will be continued pressure to exit the dollar system. This is very bullish for gold.

The savings glut of the 2000-2020 era is heading for a savings deficit, as governments spend to rebuild militaries and reinvest in infrastructure. This will lead to repatriation of capital out of the U.S., where foreigners today hold 40% of the Treasury market, compared to 20% in the 1970s, the last time there was a sustained selling of dollar-based assets. The outcome will be a sustained rise in long-term U.S. yields over 5-10 years.

Near-term (next 6-12 months) implications are not the same as the long-term

We are not the only macro fund writing commentary of this sort. Indeed, it wouldn’t be surprising for some markets to trade in the opposite direction of the views above for the next few weeks or few months – for example, the dollar may strengthen given how oversold it is and how panicked financial newsletter writers are about the “end of US exceptionalism”.  Therefore, our portfolio is currently a mix of trades that align with the long-term views above and some shorter-term trades that align better with the next handful of months.

Current portfolio

Long 2-year Treasury notes

This represents our largest position from an exposure standpoint. What makes the Fed’s job tough now is the fact that the economics textbooks state that tariffs are a one-time shock that raise price levels before supply and demand curves reach equilibrium. In theory, a central bank should hold pat and look through the near-term price bump from tariffs. But the textbooks are not written for case studies where the entire Bretton Woods architecture (the post-World War II agreement that created the International Monetary Fund and the World Bank) is being blown up overnight. And after being burned by the outbreak of inflation in 2022, Powell is likely to hold rates at current levels for too long. But if a recession is brewing, unemployment will rise sharply and inflation will fall (even if temporarily) as it always does – to mitigate against this, the Fed would need to proactively cut today to get ahead of a potential recessionary dynamic.

This is why the risk/reward of a long 2-year note position is so favorable. The Fed is trapped in a box and must wait, for political reasons. Despite the chatter, markets are not at all priced for a recession, and there is a meaningful chance of 10 rate cuts in a row if one were to occur.

Short stocks

Markets are rallying, but this feels like the rally we had in spring 2008 after Bear Stearns failed – most thought the worst of the crisis was over. The real decline was still a few months away. Today, the tariffs have already done damage to confidence and CapEx intentions. Unemployment – always a lagging indicator – hasn’t yet budged.

Short coffee

A new harvest is coming from Brazil, and weather has been very favorable in Vietnam, after a failed Robusta harvest caused ripple effects in the Arabica contract that we trade. From a technical analysis standpoint, the market appears to be putting in a big top, as it did in 1977, 1986, 1994, 1997, and 2011.

Long corn

Something did not happen in the last month that gives us confidence in our long corn position. China retaliated against the U.S. by stopping imports of soybeans and the overall grain complex (corn, beans, wheat) didn’t budge. Lack of downside movement is what happens when a market is already “sold out” and bottoming and basing. Corn is trading only slightly above break-even costs of $4 and we continue to believe that the worst is behind us in grains and that a new bull market is coming.

Short US dollar

As we noted in our commentary above, the dollar is oversold and can be expected to bounce here or at least be range bound for a month or two. We don’t trade “in and out” trying to catch every move – it’s not possible. Instead, we have elected not to add to our short dollar positioning given how extended the move has become. We will wait to see if a counter-trend rally emerges before adding to our long yen and long British pound positions.

No position in gold

It’s a strange thing to describe the absence of a position here, but given that gold is our pitch for an ‘anchor’ asset for the next 5-7 years, why don’t we have the trade on? It’s become very overbought and needs time to cool down. Anecdotal evidence (articles mushrooming in the Wall Street Journal, bullish commentary on Twitter/X) along with the increased use of bullish call option positioning by market participants gives us the sense that the current parabolic move in gold will require weeks, if not months, to correct and cool down sentiment.

One picture on tariffs

You’ve been inundated with tariff news, so we’ll keep it short.

Figure 1: Source: United Nations conference on
trade and development, 2024; BCA Research

The chart above shows that the stereotypical thing you think of when it comes to tariffs (the cost of a TV going up at Best Buy; ‘consumer’ in the chart) has a much smaller economic impact than ‘intermediate’ goods – middle stage inputs into finished products.

You don’t think about the electrical wire harness that goes into your Ford truck. These things cannot be easily produced domestically without much higher prices.

Thus far, U.S. companies have absorbed the tariffs via a hit to their margins, hoping it will be temporary. If the current tariffs are sustained, they will have a widespread impact on the economy in the months ahead.

As always, we continue to be nimble. If the data and/or our views change, we can pivot our positioning and find other trades within the 40+ markets we have available. This is also why we maintain a strategic allocation to U.S. equities in our overall fund strategy, balancing a buy-and-hold approach with active global macro long/short positions. 

We appreciate your continued trust and partnership and look forward to updating you on our progress in the coming months. Please feel free to reach out if we can provide additional clarification on specific ideas or the portfolio more broadly.