Hi there and welcome. Yes we switched from running a macro absolute return portfolio to a systematic stock portfolio because we thought that was more relevant to more people. There is some background here:
In brief, we have a universe of the 500 largest stocks globally that can be traded in the US, and each week we are either long 10 stocks equally weighted, in cash if we have a bearish view on the market, and in ACWI to match our benchmark if we want to be neutral.
Margin calls can indeed trigger a domino effect , for example the massive sell off in USDJPY, MXNJPY, AUDJPY , and in fact the PNL drawdown itself even without a margin call can trigger liquidation of other positions. However, the large cash vs futures position in treasuries isn’t subject to the dynamic you describe. Hedge funds keep both sides of that trade with the same prime broker and so the added margin required in the short futures is immediately matched with a positive mark to market on the cash treasury position. Net impact is zero. No say this triggers any collateral damage. If the long treasury is the cheapest to deliver there is literally zero risk in that trade .…
Okay thanks. Yes I understand that the big multistrat funds think they have enough cash reserves to ride out the temporary richening. I wonder if that depends on the Fed stepping in to maintain an orderly market, but I'm happy to believe that the richening is only going to be a couple of bps.
Just replied but I think I may have published it under replying to myself not to your question
New sub...glad I didn't jump into the portfolio week 1 ;)
Where can find the background on the portfolio - weightings, security selection, type, etc.,
I was assuming based on David's videos it was more of a macro portfolio...but that doesn't seem to be the case.
Thanks and look forward to learning/contributing more.
Margin calls can indeed trigger a domino effect , for example the massive sell off in USDJPY, MXNJPY, AUDJPY , and in fact the PNL drawdown itself even without a margin call can trigger liquidation of other positions. However, the large cash vs futures position in treasuries isn’t subject to the dynamic you describe. Hedge funds keep both sides of that trade with the same prime broker and so the added margin required in the short futures is immediately matched with a positive mark to market on the cash treasury position. Net impact is zero. No say this triggers any collateral damage. If the long treasury is the cheapest to deliver there is literally zero risk in that trade .…