Trends Watch: Global Macro Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks with Bradley Barrie, Chief Investment Officer, Dynamic Wealth Group.   
 

What is your outlook for global macro investing?   

Well, the outlook is certainly better than it was during the 2010s.  Several factors make global macro investing attractive at this juncture, but I’ll just highlight two.  First, the change in interest rate regime, heralded by the recent rate hiking cycle the Fed just completed. Nearly 40 years of declining interest rates (with the last 15 or so having QE and zero interest rate policy lumped on top) forced many investors into believing that bonds were the end-all, be-all of diversification.  Rising inflation, and later rising rates proved what history could have told them already… that bonds are not always negatively correlated to equities.   

These same policies led to a suppression of volatility overall, the so-called “Great Moderation,” and with the latest rate hiking cycle, we expect higher volatility (across asset classes) to remain with us. This leads to the second factor in favor of global macro: divergent asset class performance.  When asset classes diverge, it creates opportunities for global macro managers to outperform long-only strategies by going long or short and being tactical in their trades.  Think about the early 2000s or what is considered the lost decade for equities; it ended up also being one of the best periods to be invested in global macro strategies.   

The long and short is we think the more volatile nature of markets in the intermediate term sets up well for nimble managers with lots of flexibility, i.e., discretionary global macro.     

Where do you see the greatest opportunities and why? 

Within our global macro portfolio one of our highest conviction long ideas over the next three-to-five years is copper.  Even though, as of this writing, we do not currently hold any copper exposure.  Our approach to global macro is a blend of fundamental research, quantitative analysis, and technical analysis.  The fundamentals identify what to invest in, but the technical and quant analysis helps us to determine the timing.  Copper’s long-term demand from green technology, coupled with supply constraints, could drive a supply and demand imbalance, hence our outlook.  However, given concern around a global slowdown, paired with recent price action in the copper market, the past position in copper was closed.   

What are the greatest challenges you face and why?                     

Education around diversification.  Often times advisors and investors think that by hedging their equities with either bonds or traditional hedging strategies (via options or the now popular buffered strategies) they believe they are diversifying their portfolio.  But bonds only serve as a diversifier in certain environments (and definitely not when inflation is high, or rates are on the rise).   People often think diversification is binary, but it is not; having one alternative is simply not enough.  Utilizing multiple non-correlated investments is key to proper diversification.  Traditional investing involves combining different stocks and bonds together; however, the perceived diversification one receives is often not what is actually delivered. 

What keeps you up at night?   

I try not to worry too much about the future.  There’s an old saying I’ve said many times regarding investing, “It’s the bus you don’t see that hits you.”  Think about that -- if you see the bus coming, you get out of the way.  So, worrying about inflation, or war, or other things that are already being talked about; they are generally being priced into the market in some form or fashion.  However, I do get concerned that investors don’t see the need for diversification.  During times of extended strong performance in equity markets, it can be tempting for investors to not see the benefit of diversifiers.  It’s kind of like saying, “I haven’t had a car accident in years, so I’m going to cancel my policy.”  Seems silly to say that, but sadly that is what many investors tend to do.  Along those lines we fear that many are using ‘alternative’ investments that are actually highly correlated to equities.  Private equity investments have grown in popularity, because of performance.  But ask yourself, what is the second word in ‘private equity?’   

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.