William Marr, Head of Business Growth
[email protected]
Over the past few weeks, I have spoken with a couple dozen financial advisors to understand how they are managing the current investment climate and, in particular, how they are thinking about incorporating alternatives into their portfolios in an uncertain world.
One of the clearest trends I have uncovered is that these advisors are interested in non-correlated strategies such as Global Macro to enhance/protect their portfolios givean some very specific risks and opportunities they perceive in the markets today.
I asked each one I spoke with what makes Global Macro attractive right now. It turns out that there are several reasons for their interest, ranging from geo-political concerns to new platforms that have improved accessibility. Here are five takeaways from these discussions:
1. Participate and Protect – Taking a long-term perspective, equities have done very well for advisors and their clients. Many advisors are looking at strategies to add to equity heavy portfolios that also have the ability to provide protections, and that give them the conviction to stay aggressively exposed to equities. Many advisors are searching for non-correlated strategies to provide protection during market dislocations, and Global Macro has a history of performing over a market cycle when equities have faltered.
2. Rebalancing Opportunity – Other advisors have told me that their equity holdings (public+private), due to appreciation, are above the upper range of their target allocations. As a result, they are looking to rebalance strategically and add/increase Global Macro for diversification. One advisor noted that this approach will afford her the ability to confidently take advantage of an equity market correction to add exposure.
3. Globalization Peaked – Whereas many developed economies pursued similar fiscal policies since the COVID recovery, some advisors expect governments and central banks will be increasingly influenced by domestic considerations when setting interest rates, determining trade policy, and weighing security and supply chain risks. Accordingly, these advisors expect regional markets to move more independently and are therefore seeking strategies that can navigate this increase in dispersion across asset classes.
4. Geopolitical Risks – Some surveys show that geopolitical risks are the number one concern among investors. Elections, wars, security, sanctions, etc. may lead to higher volatility and market dislocations. To address this, some advisors are building their benches with flexible strategies that can adeptly trade market sectors, including commodities and foreign currencies, to complement traditional portfolios of stocks and bonds.
5. Ease of Use – Global Macro managers have been providing non-correlated returns over a market cycle for over 50 years but have generally only been available to investors with the resources to conduct due diligence, meet high minimum requirements, and deal with subscription and operational complexities. Fortunately, with the expansion of platforms such as iCapital and CAIS, advisors now have the resources to help with manager selection, education, and operational efficiencies such as low minimums and digitized subscriptions.
Finally, the key challenge for every advisor is identifying alpha-generating strategies that have the potential to protect and enhance traditional portfolios across differing market environments. Diversifying strategies, such as Global Macro, are gaining consideration from advisors seeking to build more resilient portfolios.
In my travels I have been impressed by the thoughtfulness of so many financial advisors looking at alternatives to move beyond 60/40 and deliver long-term, all-weather results for their clients. Today, a growing number of financial advisors are incorporating institutional-caliber portfolio construction methodologies as the democratization of alternative strategies continues. No single alternative strategy will be best in all instances, but the power of diversification and the rationale for Global Macro provided above create a compelling case for successfully navigating the world many advisors foresee.
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