Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Partner Content
September 20, 2021 01:00 AM

Systematic Global Macro Strategies Are a Timely Diversifier

By P&I Content Solutions
This content was paid for by an advertiser and created in collaboration with P&I Content Solutions.
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Adam Rej
    Head of Macro Research
    Capital Fund Management (CFM)

    Institutional investors face a slew of challenging market signals arising from recent inflation spikes, the potential of reduced fiscal and monetary support, continuing low interest rates and high equity valuations. In addition, the recent shift to a positive correlation between bond and equity performance has challenged the negative-correlation regime of the past decade.

    “It’s important for investors to assess what returns they should expect from bond and equity portfolios going forward. And whatever is next may not offer the same diversification that has worked for them in the past,” said Adam Rej, head of macro research at Capital Fund Management (CFM). “This is a good time to diversify your portfolio away from buy-and-hold strategies, and systematic global macro strategies can be a great source of diversification.”

    Systematic global macro (SGM) “strategies could offer excellent low correlations with bond and equity markets. They can potentially offer solid long-term returns, and they also offer exposure to other asset classes, such as commodities and foreign exchange,” said Rej, noting that CFM is a fully quantitative and systematic fund manager.

    “At CFM, our strategies are informed by a slew of leading-edge data sets, many of which require substantial computing power in order to become useful. This allows us to glean insights that the more traditional active managers might struggle to identify.”

    Deciphering inflation signals

    With the recent breakthrough of the Consumer Price Index above the low levels of the past decade, investors are trying to read the inflation tea leaves, as well as the Federal Reserve’s intentions around the tapering of its asset purchase program to support the economy.

    “There are several factors pointing to higher-price appreciation — there are monetary and fiscal policies, supply chain disruptions and appreciation in the housing market,” Rej said. “There’s also the base effect due to the drop in prices in the early months of the pandemic. All of those factors cause current inflation readings to be strong by recent standards.”

    But “for inflation to be back, long-term inflation expectations would have to shoot up. A commodity super-cycle, for example, could be a trigger. We do not see a sign of a substantial shift in long-term inflation expectations just yet,” he said. However, “there are definitely risks to the upside,” he added.

    Reversal in correlations

    While bond and equity valuations are relatively rich by historical standards and have, thus far, provided strong returns for core portfolios, Rej said he is not as sanguine about their future performance. “We still don’t know how the Fed will respond to inflationary risk over the mid-term,” he said. “The withdrawal of fiscal and monetary support could challenge, or be the litmus test of, those valuations.”

    In addition, investors have relied on the negative correlation between bond and equity performance of recent years as a hedge against each other. However, the duration and magnitude of the positive correlation between stocks and bonds in 2021 could suggest a potential return to the pre-2000 positive bond-equity correlation regime, he warned. “If that’s the case, it is bad news for portfolios concentrated in bonds and equities. The benefit of investing in those two traditional asset classes rests in their negative correlation,” he said. “The lower it is, the better.”

    SPONSORED CONTENT BY:

    CFM logo
    Capital Fund Management
    The Chrysler Building 
    405 Lexington Avenue, 55th Fl.
    New York, NY, 10174
    Nadya Prashad
    Director, Investor Relations
    646 845 8962 
    [email protected]
    www.cfm.fr

    Watch commodities

    As the traditional opportunities to hedge become more scarce, systematic global macro may offer good returns, uncorrelated from traditional assets, that make them a particularly interesting proposition for investors to add to their portfolios, Rej said. One of the strategies uses the trend-following, or momentum, approach across different markets. “We have been able to back-test this strategy over a period of up to two centuries for all major asset classes,” he noted. “Momentum is just one of our strategies, many of which are proprietary systematic alpha ideas and, as such, not publicized.”

    Rej pointed to commodities as being at a potential inflection point for a commodity super-cycle, supported by the shift toward decarbonization that requires more raw materials for infrastructure-related investment, together with an underinvestment in certain commodities needed to build a new green economy. “One of the reasons that commodities are relatively under-appreciated is partly because it’s difficult to buy commodities. One approach is through the use of futures.”

    In addition, “the dollar has weakened and there’s pent-up consumer demand for certain goods, so if we’re in the beginning of another commodity super-cycle, trend strategies will naturally pick this up. In fact, we have seen relatively solid performance of both fast and slow momentum strategies and commodities in 2020 and 2021, and a commodity super-cycle may allow those gains to run much higher.”

    CFM looks holistically at the asset class to find opportunities. “We trade a broad basket of commodities, and have a preference for strategies that work across the entire basket of commodities. We generally believe that strategies that work across many products are more robust for the longer term.”

    “Commodities are not the only source of diversification that we have found,” Rej added. “The foreign exchange markets are another one. Currencies like the euro, Japanese yen or emerging market currencies are said to be notoriously hard to forecast and, indeed, they require a prudent and more tailored approach,” he said. “But you don’t want to miss out on this market either, as it is diversifying and very liquid.”

    Tap into leading-edge data

    CFM uses multiple alternative data sources when devising investment strategies across all the asset classes, Rej said. “For example, for commodities, we use weather data, satellite crop imagery and shipping data, along with more common data sources. More common data sources may still give you an edge if you’re able to aggregate a very large number of them, which could be difficult for the more traditional or discretionary global macro managers.”

    Rej emphasized the strict scientific discipline of the firm’s investment philosophy. “All of our investment strategies are developed using data and are grounded in the scientific method. We combine those strategies using robust, cutting-edge portfolio construction techniques, and we do not override decision-making by our models, as this would contradict our scientific approach.” Another key aspect of the approach is maintaining a “state-of-the-art execution platform in order to keep the trading costs as low as possible [and] so we’re really fully systematic,” he added.

    Download Now
    Investment Insights PDF >

    “When you overlay an investors’ core strategy with the strategies gleaned from alternative data sources, you end up with an interesting proposition in terms of not only expected returns, but also low correlations with pretty much any other strategy,” Rej said. “For a wide group of investors, systematic global macro strategies provide a good alternative that is uncorrelated from bond and equity markets and is, thus, not affected by the current rich valuations.”■

    This sponsored content is published by the P&I Content Solutions Group, a division of Pensions & Investments. The content was not produced by the editors of Pensions & Investments and www.pionline.com and does not represent the views of the publication or its parent company, Crain Communications Inc.

    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing