R squared global macro management12/7/2023 ![]() Central Bank tightening has drained market liquidity and heightened volatility. An environment as uncertain as this requires true diversification, and heightens the need for asymmetric trade expressions (in which the potential upside is greater than the downside). A recent survey Footnote2 showed the widest range of long-term inflation expectations in 30 years, and, in spite of the current high inflation environment, an all-time high percentage of respondents expecting long-term deflation. Going forward, while we expect the set of macro opportunities to remain rich, we believe heavy uncertainty, ongoing spikes in market volatility and recurring liquidity crises will challenge these approaches, especially on a risk-adjusted basis: In many cases, the result is a return stream with a higher proportion of returns exhibiting traditional betas, namely equities - even if macro as a category generally exhibits much less of this than other types of funds (see Figure 2). All too often, however, trades remain highly correlated with each other, with only secondary consideration paid to trade expression (the choice of securities used to express the market theme in question), market timing, or tactical adjustments. Contrary to the 1980s, when macro strategies first took hold, managers now use more than just a handful of trades to execute their views. To see why we advocate a more dynamic, nuanced approach to macro investing, it is important to understand how most macro funds operate. Traditional macro strategies have evolved This more modern approach will, in our view, likely outperform its more traditional counterparts. Yet, we believe the increasingly uncertain and fragile market environment calls for a more dynamic, nimble approach to the strategy – one that seeks to monetize not just the trends, but the volatility around the trends, while defending against a widening range of outcomes. dollar to Treasuries to commodities – will continue to provide a fertile landscape for macro investing. We expect that gyrations across assets – ranging from the U.S. ![]() With this in mind, investors seeking diversification from equity portfolios (see Figure 1) have poured $7.3 billion in net inflows into macro funds Footnote1 over the last three years. This is not surprising: The macro style of investing – in which managers invest based on their outlook for the economy and geopolitical events – has historically performed well when markets, particularly equity markets, have experienced large moves. In 2022, as most asset prices sank amid sharply rising interest rates, macro hedge funds generated their strongest returns in several years. Macro investing is enjoying a renaissance.
0 Comments
Leave a Reply.AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |