Published By Bob Elliott on April 8, 2025
The market turmoil to kick off ‘25 has many investors considering adding diversifying strategies to those traditional 60/40 portfolios that have done well in recent years. As we scan the universe of underappreciated diversifying strategies, Global Macro alpha stands out as one of the most compelling complements for many portfolios.
These managers typically take long and short positions across major liquid currency, commodity, fixed income, equity index, and credit markets, looking for the biggest opportunities agnostic to geography or asset class. This approach gives these managers the opportunity to generate alpha independent of the direction of the US equity and bond markets, decreasing the correlation to traditional long only strategies.
The chart highlights the benefit of Global Macro strategies in the context of a range of possible additions to a traditional 60/40 portfolio. Over the last couple decades, an incremental allocation to global macro alpha has offered a strong improvement in the risk/return of a traditional 60/40 portfolio, particularly if that return can be accessed with less fee drag than typical 2&20 costs.
Over the last couple decades global macro strategies have delivered returns roughly on par with a broader 60/40 portfolio at a 95bps fee structure, often performing well during more challenging market environments.
These returns on par with 60/40 have come with lower monthly volatility, and likely even more important for many investors, more limited drawdowns seen in many long-only strategies.
The complimentary attributes can create a strategy with the ability to maintain value during challenging market environments and generate positive returns during positive market environments. That return profile is what many hedge funds strive to achieve – full cycle returns on par with 60/40 paired with attributes that can help limit downside, rather than generating outsized upside in buoyant markets.
Over the last couple decades, Global Macro managers have shown their value as a complement to 60/40 portfolios. Now with hedge fund offerings becoming available in the ETF wrapper investors have the opportunity to access that alpha at 95bps of fees, rather than the typical 2&20. If an investor held a 20% allocation to the strategy, from the period of 2002 to present they would have experienced improved performance, lower volatility, and less meaningful drawdowns in depth and duration, a pretty attractive combination of diversification benefits.
With increasing questions about the durability of the US equity rally, it seems to be an opportune time for allocators to consider adding Global Macro alpha to their portfolio. While there are hundreds of managers out there, the key is getting enough diversification to not be overly exposed to a single manager and find structures with low fees so that the alpha generated benefits the end investor.
For informational and educational purposes only and should not be construed as investment advice. The historical analysis discussed herein has been selected solely to provide information on the development of the research and investment process and style of Unlimited. It does not constitute an offer to sell or a solicitation of an offer to buy any security. Opinions expressed are our present opinions only. No Representation is being made that any investment will or is likely to achieve profits or losses similar to those shown herein. No investment strategy or risk management technique can guarantee return or eliminate risk in any market environment. The material is based upon information which we consider reliable, but we do not represent that such information is accurate or complete, and it should not be relied upon as such. The historical analysis should not be construed as an indicator of the future performance of any investment vehicle that Unlimited manages.