Are global macro managers back in the driver’s seat?
Many investors watching the current market trends and global growth uncertainty have been pondering macro trends anew.
The dollar is depreciating, Bitcoin is hitting new records and investors have flocked to gold as global macro managers reported strong performance in December going into early 2021.
Uncorrelated macro strategies experienced small asset inflows in the fourth quarter of 2020, according to HFR, which reported investors continuing to position for macroeconomic uncertainty and powerful trends across global financial asset markets. As of yearend 2020, macro strategies climbed to $604 billion, which was an upswing of $24.8 billion from the third quarter of 2020.
Returns are likely to draw in more investors. Macro strategies such as Crescat Global Macro, which was up by 66% last year and Gemstock, which was up over 50% in 2020, will likely draw attention. Even Brevan Howard saw gains of 27% in a year where equity hedge funds continued to steal the show as long-only trades paid off with new U.S. stock market highs.
“The stage is set for a massive investor shift out of overvalued mega cap growth stocks and fixed-income securities and into undervalued materials, energy, and other commodities,” wrote Crescat Founder and CIO Kevin Smith in a January investor letter obtained by Alternatives Watch. “We believe it is the dawn of what we are calling the Great Rotation.”
Crescat illustrated its case for macro in the letter pointing to Federal Reserve Chairman Jerome Powell’s welcoming of inflation, while not even thinking about raising interest rates. According to the firm, the Federal Reserve will likely no longer be able to keep both interest rates and inflation down at the same time. Inflation is seen as the catalyst for the “Great Rotation.”
According to multi-manager firm Lyxor Asset Management, global macro strategies broadly have embraced reflation trades in the past quarter scaling up positions on emerging markets FX, equities, commodities and inflation-linked bonds. The firm maintains an overweight stance on global macro strategies and adds that discretionary macro strategies are positioned for a steepening of the Treasury curve and some have been short on U.S. Treasuries.
Overall, global macro strategies have shown themselves to be opportunistic in a range of asset classes and geographies, according to Lyxor analysts. The expectation is that global macro managers’ diversified portfolios and relative value approach should allow them to absorb volatility spikes triggered by shifting market sentiment over monetary policy and equity valuations.
Interestingly enough, many global macro managers are also pointing to the rising value of gold and silver as further bolstering their thesis. They are not the only hedge fund strategies hopping on the precious metals band wagon, however. Long/short equity managers, caught out on the short side and riding the aging bull market on the long side, are spotting a new set of trades – specifically in companies related to metals mining.
Either way, macro firms large and small will be well worth watching as the debate about the post-COVID global economy continues among managers and investors alike.
