You’ve decided that Macro or Trend is right for your portfolio, but now what? How do you narrow the field with so many managers and offerings? We discussed this ourselves, and here’s a short video clip to get you started.
William Marr:
Pat. It’s a vast universe out there. There are thousands and thousands of managers. If you’re an advisor and you’re listening to this and you’re interested to sort of explore macro, CTA, trend following, what’s a starting point to whittle down that universe and what might be one or two due diligence questions that you have found insightful over the years that advisors should be asking?
Dr. Patrick Welton:
Oh, that’s a great question. First of all, I would not try to make it complicated. The structural and enduring non correlation or even negative correlation is really helpful in asset allocation, and one will achieve that by using larger diverse programs in macro and trend.
A good example is a pension plan that I sit on where they have about a 15% allocation to these strategies. They’re divided between macro and trend, and last year we pulled about $230 million of PNL from those strategies, which was very helpful. And roughly a $200 million loss of PNL in public equities for advisors.
I’d condense it to three diligence questions. One, how experienced is the manager in the field? Two, how diversified or defensive, if it’s desired, is the specific fund? Three, how disciplined has the investment process been? And the easy answer is if any of those are low, that’s bad. And if they’re high, that’s good. So, one is probably going to get exactly what they want if there’s long experience, highly diversified, and it’s been disciplined through time.
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