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Finding alpha in global macro

Aspect Capital’s Asif Noor says there is still money to be made in global macro funds despite the growing popularity of alternative risk premia strategies which have been winning assets and stealing alpha.

The hedge fund manager said the trick to generating returns in global macro, which bases investments on economic or political events, came down to the speed of execution. He said you can still use value and momentum factors that are popular within risk premia strategies, but they are now traded in a different way.

“You have to go down the spectrum of the holding period of high frequency strategies,” said Noor, who specialises in global macro and FX at the $7.2 billion systematic investment firm headquartered in London. “It’s about being more agile and dynamic.”

Global macro, whether run by a discretionary manager or systematically, has typically been used to diversify an investor’s portfolio to mitigate risk. The strategy last year recorded its first negative annual return since 2000 but has since rebounded strongly in 2019, according to Eurkeahedge’s Macro Hedge Fund Index.

Of the US$3.2 trillion of assets invested in hedge funds globally, around US$300 billion is currently allocated to systematic macro strategies, according to Hedge Fund Research. Cambridge Associate managing director Travis Schoenleber said while the average annual performance was low, at around 1.5 per cent, once investors screened out managers for things like institutional quality or the size of assets,  returns were closer to 5 per cent.

Speaking at Investment Magazine’s Absolute Return Conference in Sydney, Schoenleber along with Noor, said the downside capture showed a lot less risk relative to other hedge fund strategies and the broader equity market. Noor said while global macro had this year started to underperform other strategies like trend following, his investors were “sophisticated enough” to understand why.

“The periods where we have outperformed are where equity markets are having a tough time and there is a lot more dispersion,” he said. “That is the objective function that we are trying to deliver to our end investor.”

Even so, he said the advent of risk premia had “eaten away” a lot of the returns available to global macro and opened the strategies to criticism and outflows as performance lagged. Noor said where once asset prices and returns were driven by legacy economic data, managers today had to contend with a contemporaneous movement of asset prices and macro data.

“Models have to be built to take account of that,” he said. “You have to build strategies that have high frequency. By building more independent bets into the portfolio per year there is direct relationship to how much alpha you can generate.”

Noor also said the growth of alternative sources of data had helped make global macro “cool” again. “There are a lot more avenues of research which leads to higher frequency strategy,” he said. “I think this is the way forward in the macro space.”

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