Cliff Asness’ AQR Capital Management has just released a new Investor Letter, a copy of which you can download below. This time, the letter discussed the possibilities of a single macro strategy that integrates two different approaches – an opportunistic strategy that exploits serious dislocations between prices and fundamentals, and a systematic strategy that aims to recognize fundamental trends.
“Global macro strategies have been a mainstay of the alternative investment universe for several decades. Institutions and individuals have been attracted to these strategies by a number of appealing features: strong risk-adjusted returns across varied economic environments, low correlations with both traditional portfolios and other hedge fund strategies, and scalability due to the deep liquidity of many macro markets.1
The popular conception of macro has often centered around individual portfolio managers making large bets based on insightful predictions of rare events. While we do not wish to minimize the successes of this concentrated discretionary style of global macro,2 both today and historically, our research has identified profitable approaches to macro investing that may be more repeatable in the long run. Specifically, prior white papers have explored two such approaches: a Systematic Macro strategy focused on rigorously measuring changes in economic fundamentals and using this information to position across and within asset classes, and an Opportunistic Macro strategy that aims to capitalize on occasional extreme dislocations between prices and fundamentals. This paper explores the potential benefits of combining the two approaches to create a comprehensive global macro strategy.
The paper is organized as follows: We start by highlighting the economic intuition behind an integrated global macro approach combining systematic and opportunistic elements. Afterward, we present quantitative evidence over a quarter of a century for the potential benefits of combining these approaches. Finally, we show how the integrated strategy may be a valuable diversifier not only to a traditional portfolio but also within an alternatives portfolio.”
You can download a complete copy of a new AQR Capital Management’s Investor Letter here: