Webinar: Beyond Stocks and Bonds — 101 Session on Global Macro Strategies with Wellington Management

Watch the webinar replay

About the session

Hedge funds are not the most straightforward asset class to understand, save for expectations of their alpha generation possibilities.

A lesser known fact about this alternative investment is that hedge funds can come in different forms and types. A hedge fund based on a global macro strategy, for example, is one that is influenced by the overall economic and political views of the macroeconomic environment.

Endowus warmly invites you to the next session of our educational alternatives webinar series. We focus on what global macro hedge funds are and what makes them so different.

This 101 session will be hosted by Min Axthelm, Director of Investment Research at Endowus, and she is joined by Christopher S. Perret, CFA, CAIA, Managing Director and Investment Director of Wellington Management. They will provide you with a basic understanding of global macro investing. Topics to be discussed will include:

1. What is global macro investing and how does it work when it comes to hedge funds?
2. What are the differences in various global macro strategies?
3. How do global macro strategies complement traditional portfolio allocations?

Chapters

• 00:00 - Introduction
• ‍07:00 - What is global macro investing and what are its characteristics?
• ‍10:00 - What does George Soros have to do with global macro investing?
• ‍13:00 - We ask ChatGPT to explain what global macro funds are
• ‍20:00 - What are the different ways to execute a global macro strategy?
• ‍33:00 - Is the old regime of economic uncertainty back again?
• ‍36:00 - How major demographic changes and deglobalisation will fuel more volatility
• ‍42:00 - Global macro strategies tackle public market inefficiencies
• ‍48:00 - Global macro diversification can lead to better controlled drawdowns
• ‍50:00 - Macro strategies have historically performed well in elevated volatility environments
• 58:00 - Q&A from the live audience

Highlights from the webinar

What is global macro investing?

Min: Global macro is essentially an investment strategy in which fund managers or investors refer to broad macroeconomic trends and events that affect economies and financial markets worldwide. 

It involves a lot of research, macroeconomic analysis, sophisticated tools, and a top-down approach to understand and predict the interplay of a wide range of factors — including interest rates, inflation, foreign exchange (FX), geopolitical events, fiscal policies, and more.

Key characteristics of global macro investing include:

• Diversification across asset classes
• Risk management: hedging strategies, position sizing, stop-loss orders
• Investment instruments: utilising various financial instruments

What are the different types of macro investing strategies?

Christopher: There are many ways to implement a macro idea or strategy within a portfolio. We asked ChatGPT, “What is a global macro fund?” As ChatGPT answered, a global macro fund invests in a diverse range of financial assets, including stocks, bonds, currencies, and commodities, based on macroeconomic analysis of global market trends. These funds typically take a top-down approach to investment.

The world looks quite uncertain to us from an economic perspective, due to a number of near-term and longer-term structural factors. Macro investing has historically shown to be an investing style that tends to do well when there is a lot of uncertainty and volatility in the markets.

From an opportunity set standpoint, macro investing spans the full gamut of public and liquid markets globally, be it fixed income, currencies, equities, or commodities. Having said that, macro strategies tend to emphasise fixed income and currency markets. Equities and commodities usually have a smaller degree of prominence in these portfolios.

Macro investing opportunity set:

Is the old regime of economic uncertainty back again?

Min: Prior to last year’s strong performance, macro funds have had a very bad decade. Do you expect the performance to improve, considering the change in regime?

Christopher: From our perspective, we certainly do believe the old regime is back again. The era of elevated economic uncertainty (and thus volatility) is a phenomenon that we don’t think is going away. As the chart below shows, from around 2011 and 2012, all the way to 2018 and 2019, inflation was low, so there was not a lot of economic volatility. 

That clearly has changed, and inflation uncertainty is likely to remain elevated. There are a number of reasons why, including the changes in demographics around the world, which are going to lead to changes in productivity. Another reason is deglobalisation. These are going to have significant implications from an economic perspective. We assume inflation is going to remain more volatile and cyclical.

Economic uncertainty fuels volatility

Why invest in global macro strategies?

Min: Global macro strategies can bring diversification and alpha potentials. It also allows us to capitalise on broad macro trends, especially if you have strong views. There is potential for alpha generation and returns across different market conditions, but that also comes with high risk. 

Investors can also choose from a wide variety of strategies to suit their needs. Different strategies have very different risk-return profiles and performances.

‍Christopher: 2022 was a really good year for macro funds in general, as one of the questions from the audience pointed out. But even within that good year, there was a lot of performance disparity across global macro funds, which I think comes down to the style and implementation of the fund. We’ve found that clients are looking for a consistent, all-weather type of positive return outcome with a very clear focus on preserving on the downside, which means not subjecting our investors’ capital to big losses. 

We have observed that the performance of high flyers — funds that can make returns of more than 50%, for example — tend to not be repeatable (for multiple years), and it can be difficult for investors to stomach the other side of that coin, as it’s equally plausible that you could lose more than 50% in such a fund.

What we think is repeatable and achievable is more in the high single-digit or low double-digit range, from a net return standpoint, with drawdowns that can be of a similar size but of a lower frequency. That’s where we think the sweet spot lies.

Advantages of global macro strategies:

If you identify the right manager, macro strategies can potentially deliver alpha that is repeatable. The macro style aims to capitalise on the inefficiencies in specific pockets of the public markets, and skilled managers can extract the alpha available in these markets.

Also, equally important in this environment is finding the strategy that can offset the effects of your traditional asset performance. All investors have exposure to traditional assets such as stocks and bonds. Global macro investing can offer diversification benefits, as it’s designed to be an uncorrelated source of return.

Well-known cases of global macro investing

Min: A famous example is businessman George Soros’ trade against the British pound (GBP) in 1992. At the time, way before the euro, the GBP was pegged to the Deutsche Mark currency within a very narrow tolerance band. Mr Soros and his team conducted a lot of research and analysis, and concluded that the GBP may be overvalued, and that the current economic situation in the UK was not sustainable. He believed that eventually the Bank of England would not be able to maintain the pound’s peg to the Deutsche Mark.

Mr Soros and his team thus short-sold the British pound, with the expectation that they would buy it back at a much lower price. He also made public statements on his negative sentiment of the currency. On 16 Sept 1992, the UK government tried to raise the rate to defend the pound and maintain the peg, but the aggressive short-selling persisted. Eventually, it couldn’t defend the currency anymore, and the UK government had to withdraw from the European Exchange rate mechanism (ERM) and let the pound float freely. This meant that the value of the pound dropped significantly, which made a lot of profit for those who short-sold the currency.

Other examples of global macro investing include John Paulson during the subprime mortgage crisis (2007-2008), Michael Burry during the US housing bubble (2005-2008), and Ray Dalio during the European debt crisis (2011-2012).

About the speakers

Min Axthelm, Director of Investment Research, Endowus‍

Min Axthelm is the Director of Investment Research at Endowus, a leading digital wealth platform in Asia.

In her current role, Min leads the efforts at Endowus’ Investment Office on research and content creation on the macro market and asset allocation, portfolio construction & optimisation and investment manager due diligence. She also works closely with the Product team on product research and development.

Min has more than a decade of experience in the investment industry, including fund manager due diligence and asset management, and joined Endowus from Morgan Stanley in New York, where she was Lead Analyst with its Wealth Management Global Investment Office, overseeing the due diligence process from inception to completion for US Equity strategies and mutual funds.

‍Christopher S. Perret, CFA, CAIA, Managing Director and Investment Director‍

Chris is an investment director in Investment Product & Fund Strategies (IPFS). IPFS oversees certain Wellington-managed fund vehicles that pursue alternative investment strategies. The IPFS Team serves as fund sponsor for several alternative funds, overseeing fund governance, product development, marketing, and operations, and servicing fund investors. As an investment director, he works primarily with our macro and credit investment teams and is responsible for a range of business and investment-related activities. Specifically, he helps ensure the integrity of various investment approaches and represents the funds both internally and externally.

Prior to joining Wellington Management in 2010, Chris worked as a product analyst at State Street Global Advisors (2008 – 2010), where he contributed to the product management of the firm’s fixed income approaches. Before that, he held positions in FX and equity trade support for State Street Corporation (2004 – 2008).

Chris earned his MBA, with honors, from Boston University (Questrom School of Business, 2010) and a BBA in finance from the University of Miami (2004). Additionally, he holds the Chartered Financial Analyst and Chartered Alternative Investment Analyst designations and is a member of the CFA Institute and the CFA Society Boston.

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