Unlike some of the more noteworthy fund managers who appear on our TV screens all too often, Hugh Hendry seems to have been head-down hard at work. The appropriately named Eclectica fund that he manages has had a stupendous year as The FT reports his 'China Short' fund is up over 52% for the year. We discussed his already-solid performance back in September, when he was up a mere 40% YTD following an exceptional month in September. Given the difficulties of shorting Chinese firms directly, the deeply contrarian manager who makes no apologies for his view of a 1920's Japan-like crash in China is clearly doing something right. His positions in Japanese entities with large Chinese exposures makes great sense and the fact that he has kept outperforming this quarter even as Japanese credit has rallied back quite impressively, from spike wides in September and October, seems testament to our TV-Appearance-to-Performance anti-correlation thesis.
Japanese Corporate credit spreads (above) spiked in late September and early October, which surely helped performance in the previous quarter but to have kept that performance going so well into the 4th quarter where things have been a lot less directional is impressive.
And during the same period, the cost of protecting China's debt (black line) grew rapidly in September and October but has stabilized, in an admittedly choppy way, at better levels - even as Chinese stocks (orange line) have continued to plummet.