Dynamic Alpha Macro Fund (DYMIX): May 2025 Overview

This Month’s Performance

May tested the resilience of our dual strategy framework, as our global macro exposures weighed on returns despite a broad equities rally. The Dynamic Alpha Macro Fund declined -0.98% for the month, underperforming both the S&P 500 (6.29%) and the S&P Target Risk Balanced Index (3.28%). While our long positions in the British Pound and strategic equities added value, this was more than offset by losses across a mix of macro exposures, including the 2-year Treasury note, Japanese Yen, and Natural Gas.

The month’s underperformance underscores the purpose of our approach: to provide equity-like returns through noncorrelated assets that behave differently in various market environments. While conventional benchmarks surged, our short S&P 500 and long 2-year Treasury positions reflected a contrarian macro view—one grounded in tightening liquidity conditions and economic deceleration. These exposures detracted in May but our flexible nature can allow for adjustments should our convictions change as market dynamics evolve.

Looking ahead, we maintain a diversified portfolio—long gas and select currencies tied to fiscal and geopolitical realignments—while preserving balance through strategic equity exposure. With over 40 global markets in scope, we remain flexible and risk-focused, positioned to navigate the continued uncertainty that markets have presented to investors so far this year.

Permian Slowdown: Structurally Tighter Natural Gas Market Outlook

After 20 years of flatlining, demand for power – both stateside and globally – seems ready to rise. This is due to a mixture of AI, added cooling from global warming, and other factors. We are broadly bullish on two key assets: copper and natural gas. We’ve discussed copper in previous letters and will have more to say about the red metal in the future – today we focus on gas.

Longer dated natural gas prices are holding firm at higher levels – behavior opposite of that experienced during the long natural gas bear market from 2012-2020.

On the graph below, the white line representing February 2028 natural gas futures is maintaining higher price levels (above $4) over the last few years than it did during the era of excess shale oil and gas production in the previous decade.

NG G28: Feb 2028 natural gas ($/MMBtu)

Source: Bloomberg

The first key to this price behavior is that the Permian – the most prolific shale basin in the U.S. –is finally slowing down, and oil production looks set to gradually decline in the quarters ahead. In the following chart of crude oil production, you can see that other shale patches (the Bakken and Eagle Ford; red and purple lines) peaked in early 2015. In contrast, the Permian has defied predictions and continues to gush oil, but the growth rate has slowed to a crawl in recent years. The Permian appears ready to join the fate of other shale fields. While horizontal fracking is an amazing technology, it’s now reaching the limits of easy, profitable growth. U.S. oil production appears likely to stagnate and potentially decline in the years ahead.

U.S. crude oil production (MMb/d)

Source: Bloomberg

The second key to understanding the implication for natural gas is that the rise in oil production during 2012-2015 was the era of wildcatting — small drillers chasing growth at any cost. Those companies sold themselves to the majors (Exxon, Chevron, etc.) who continued to drill and expand production. The onset of Covid brought changes: CapEx was permanently reduced in favor of profitability. Although production has continued to grow, it has done so at a much slower pace.

If the most prolific field remaining, the Permian, is hitting its limits, then it feels as though 13m b/d is the rough limit of current U.S. oil production, given where prices are and a decision to prioritize cash flow to shareholders.

Since natural gas is often a buy product of oil drilling, slowing oil output—both from hitting geological limits and from producers drilling less to boost dividends—means less extra gas will be produced.  Now add the demand pull of LNG (liquified natural gas) exports, where the U.S. is now the world’s leading exporter, and both supply and demand come into focus to drive a bull market in gas.

With natural gas prices in Europe and Asia 3x those in the U.S., even adjusting for shipping costs, there appears to be a reasonable chance that prices converge in the years ahead. We opened a long natural gas futures position in April to play this longer-term theme.

Current portfolio

2-year Treasury notes (long)

We trimmed our long position in 2-year Treasury futures as the price moved against us for most of the month. Despite this being one of our higher conviction ideas, our risk management system is to trim when positions move against us, and to add to positions at set points when a trade is moving in a favorable direction.

Why We’re Still Long 2-Year Treasuries Despite the ‘Liz Truss’ Talk

The entire financial world is abuzz with the notion that the extravagant budget and tax bill (i.e. the one, big, beautiful bill) will lead to a ‘Liz Truss moment’ for the U.S., where sharply rising yields at the long-end of the yield curve caused the government to reverse course and rein in ever-rising deficits.** While this has become the base case for many market participants, we still think this will manifest a few years from now, and the greater near-term risk is a slowdown in the economy that was brewing well before the tariff complications. With real wages barely rising, our focus is on whether consumer spending on services slows down meaningfully in the U.S., as opposed to the focus that tariffs place on the smaller share of spending that flows to goods.

Coffee (short)

The continued price action in coffee looks more and more like a technical top. Large Commodity Trading Advisors (CTAs) and hedge funds are still very long, while supply looks set to flow in from Brazil and elsewhere as weather related issues are improved.

Corn (long, closed in May)

Our thesis is that grain prices are close to the cost of production, yields have been revised downward, and any weather-related issues will send prices back to the top of their 15-year range – corn could go back over $7. The market’s price action tells us that the timing is off, as growing conditions seem fine overall. This may be a trade to re-try later this year, or perhaps in 2026. As always, we never take our eye off positions where we have a fundamental view – we may just need to wait and watch for a few quarters.

S&P 500 (short)

If the last five weeks were simply a bear-market rally at the start of a new downturn, it acted just like textbook bear rallies: it lasted longer and rose higher than expected, flipped sentiment, drew retail traders into buying the dip, and pushed pros to drop the tariff talk and focus on the still-strong jobs and consumer-spending numbers.  Yet the tariffs have yet to even bite meaningfully and are set at very high levels relative to six months ago – either consumers will have to pull back if forced to “eat” price increases or firms will take a margin hit. We’re looking for a classic, slow-moving 12-18 month bear market, like 1969-1970 or the 2000-2002 dot-com bear. We are not looking for a “crash” like fall 2008 or Covid in 2020. Unfortunately, the latter two have conditioned people’s views on what it means for the stock market to move lower, but they are outliers and not the norm.

Japanese yen (long)

Yields are rising rapidly at the long-end of the Japanese yield curve. We don’t believe this is because a fiscal crisis looms – Japan’s fiscal deficit is under 3% of GDP against 6-7% in the U.S. And despite Japan’s massive debt load, they are net creditors to the rest of the world. A better take on the rise at the long end of the yield curve in Japan is the notion that we are headed toward an overall inflationary era and an era of capital scarcity – the exact opposite of the ‘secular stagnation’ era of the 2001-2019 period (where yields fell to low levels across all developed markets). There were not enough bonds available for large pools of capital during secular stagnation; going forward increased issuance implies there will be too many bonds. If this is the case, the Bank of Japan will need to keep raising rates, putting upward pressure on a yen that sits at very cheap levels. 

British pound (long)

Paired with our yen position, this creates a short U.S. dollar theme. The pound has different drivers than the yen. Despite all the drama that the U.K. has faced over the past decade, from Brexit to financial market tremors surrounding its fiscal position, the U.K., like Europe, will increasingly be seen as a more reasonable political jurisdiction to invest capital in the years ahead.

Natural gas (long)

We opened a long position in natural gas during April. As outlined above, a large move in gas could occur over the next few years, as both supply and demand factors are pressing in the same direction.

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 Are Here To Help

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.

If you are a financial advisor and would like more information on our multi-dimensional approach towards asset management, you can download our white paper titled Busting Seven Risk and Return Myths by visiting our website at DynamicWG.com, or email us at info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor, if so desired.

** In 2022 Liz Truss, Britain’s Prime Minister, announced a “mini-budget” that included unfunded deficits that no longer seem outrageous in hindsight, particular given the U.S. deficit in recent years. However, it happened to be the proverbial “straw that broke the camel’s back”, and the pound plummeted while U.K long-end rates screamed higher. Truss had to backtrack quickly and was out of office a few weeks later.