Go big or go find a very small home. That seems to be the message for funds wishing to shine in the Global Macro sector.
The managers with the highest Sharpe ratios in this category over the past three years have either fully embraced that global macro mandate or have found far narrower niches in which to thrive.
Eric Stein, Michael Cirami and John Baur – all + rated by Citywire – for example run traditional macro strategies in their Eaton Vance absolute-return funds. Their risk exposures are currently focused on currencies and interest rates, with smaller allocations to bonds and equities.
This, though, belies the eclecticism of their portfolios. On the foreign-exchange side, for instance, they have recently increased their positions in the Sri Lankan and Icelandic currencies: in the former case because the country’s central bank is keeping monetary policy tight to restrain inflation while the government implements reforms, and in the latter because Iceland is enjoying double-digit economic growth following the removal in March this year of capital controls that had been in place since 2008.
Michelle Borré’s Oppenheimer Fundamental Alternatives fund is similarly macro in nature, albeit with a very different portfolio. Borré’s style is primarily long/short, with equities and credit the principal exposures, drawing both on stock picking and the expression of broader themes.
Borré is thus long Apple for its solid product cycle and cash returns to shareholders, and short the Penn Real Estate Investment Trust as the malls it operates continue to decline.
Finally on the true macro side is Ajay Dravid and Rufus Rankin’s Equinox BH-DG Strategy fund, a systematic trend follower that allocates to liquid futures across the major asset classes. It takes its name from its commodity trading advisor, a joint venture between David Gorton and the hedge fund Brevan Howard.
Then there are the funds that have risen to the top of the sector with far more specific approaches. Anthony Caine and Anish Parvataneni’s LJM Preservation and Growth fund, for instance, deals in call and put options on S&P 500 index futures to profit from the spread between implied volatility and realized volatility.
It has performed particularly strongly over the past year, gaining 12.8%, despite the widely reported dearth of volatility in the market. It benefits, of course, from the gap in volatility expectations rather than relying on actual volatility – unlike volatility products like Vix ETFs that have struggled in this climate. The fund also boasts the distinction of having been negatively correlated to the S&P 500 since inception in 2013.
At present, that means the fund almost exclusively targets the preferred stock of real-estate investment trusts, alongside a short index position. These preferred securities, Orinda has highlighted, offered a yield of 6.7% at the end of the first quarter of this year compared with 5.9% from high-yield bonds, 4.1% from real-estate investment trusts generally, and 2.1% from the S&P 500, while also having had a correlation below 0.5 to both equities and bonds since 2000.