Considering The Benefits of Global Macro Alpha

Most investors would be far better off allocating to global macro strategies than trying to time macro market moves themselves. Global Macro index alpha has a history as one of the most diversifying strategies for 60/40 portfolios, often shining in times of turbulence.

These managers typically take long and short positions across major liquid currency, commodity, fixed income, equity index, and credit markets, looking for the biggest opportunities agnostic to geography or asset class. This approach gives these managers the opportunity to generate alpha independent of the direction of the US equity and bond markets, decreasing the correlation to traditional long only strategies.

Over the last couple decades Global Macro hedge fund strategies have delivered returns roughly on par with a broader 60/40 portfolio at a 95bps fee structure, often performing well during more challenging market environments.

These returns on par with 60/40 have come with lower monthly volatility, and likely even more important for many investors, more limited drawdowns seen in many long-only strategies.

The complimentary attributes creates a strategy with the ability to maintain value during challenging market environments and generate positive returns during positive market environments.

If an investor held a 20% allocation to the strategy, from the period of 2002 to present they would have experienced improved performance, lower volatility, and less meaningful drawdowns in depth and duration a pretty attractive combination of diversification benefits.

Inevitably investors ask why look at the index returns rather than finding the best managers.

As anyone who has done individual manager selection knows, one of the biggest challenges with investing in individual managers is the extreme dispersion in returns. 2024 was a good example of just how wide the dispersion can be for any one individual manager allocation.

As we noted in our recent piece "Elusive Persistence" there is no evidence of individual manager outperformance persistence. A manager's above median (or top quartile) return in one year does nothing to predict whether it will be the same in the future. Macro strategies are no different than any others we see:

Given that reality, investors are much better off looking for diversified strategies and ones that are low cost then trying to pick the very best manager themselves. That is, an index alpha strategy is likely to deliver more consistently beneficial portfolio return attributes.

Instead of trying to pick individual managers to get higher returns, a likely more consistent approach is to invest in a global macro index strategy, but at a 2x target return. Historically that's delivered better than equity returns with meaningfully smaller drawdowns.

These return properties make Global Macro hedge fund strategy alpha one of the most compelling returns to add for most portfolios. With heighted volatility and increasingly easy access to index alpha in investor friendly structures, its time for investors to consider adding it to their portfolios.