Consider diversifying your portfolio with alternative strategies like Global Macro and Managed Futures funds. Global Macro managers invest based on economic forecasts, taking positions in assets like currencies, commodities, and bonds they believe are mispriced. In contrast, Managed Futures strategies systematically follow price trends, buying assets that are rising and selling those that are falling. This trend-following approach can offer valuable portfolio protection during market downturns by profiting from downward trends. To gain this exposure, evaluate funds that clearly articulate either their fundamental economic thesis or their systematic trend-following models.

Global Macro Strategy

• This investment strategy focuses on identifying inconsistencies between what is priced into asset markets and what is projected to happen with the macroeconomy or government policy.
• Managers analyze economic conditions and policy to form a view, then take positions in markets that they believe are mispriced according to that view.
  • Example provided: If the economy suggests monetary policy should be tighter, but the market isn't pricing that in, a global macro manager might take positions in short-term interest rates or bonds to profit when the market eventually adjusts.
• The strategy trades a broad range of global assets, including currencies, commodities, fixed income, credit, and equity indices.

Takeaways

• Investing in a Global Macro fund is a bet on the manager's ability to correctly forecast economic outcomes and policy decisions.
• When reviewing communications from a Global Macro manager, you should expect them to clearly explain their economic thesis—why they believe a certain market is mispriced based on their fundamental analysis.
• This is a discretionary strategy that relies on a manager's expert judgment about the economy, making it different from purely quantitative or price-following strategies.

Managed Futures Strategy

• This strategy primarily uses price information and price trends to make investment decisions, rather than economic fundamentals.
• It is often synonymous with trend following, which means buying assets that have a recent history of going up and selling assets that have been going down.
• It trades the same opportunity set as Global Macro, including currencies, commodities, fixed income, credit, and equity indices.
• A key characteristic is its discipline in following price action, which can be particularly beneficial in down markets or defensive periods where it can systematically follow downward trends.
• Unlike Global Macro, a Managed Futures strategy will follow a price trend whether it is consistent with the underlying macroeconomic conditions or not.

Takeaways

• Managed Futures can be a valuable diversifier in a portfolio because its performance is driven by the presence of trends, which can occur when traditional assets are both rising and falling.
• This strategy can perform well during market stress or downturns, as it is designed to follow strong trends in either direction without emotional bias.
• When investing in a Managed Futures fund, you are trusting the fund's quantitative models to identify and capitalize on market trends, not a manager's discretionary economic predictions.