Systematic Macro-Defined

Systematic Macro is a strategy with an objective to make money regardless of how broad markets are performing through various bets, short and long, in several asset classes. Below I am going to outline what the strategy invests in, how we have implemented it for our clients, and why now.

Definition – Investing can be simplified into three basic categories, equity, fixed income, and alternatives. Equity represents the stocks you hold in various mutual funds or ETFs, or the Apple certificate your grandma gave you, it is an ownership structure that lets you participate in the growth of a company. Fixed Income, or the bond markets, have long been a place to put money to work when stocks became too volatile, or when your intent was to de-risk a portfolio. Lending your money to companies like Apple, or Microsoft, or your local municipality for that bridge or school. These are examples of the bond market working. Bonds pay a fixed interest rate and historically have been a place retirees could count on for income and safety. Alternatives are a catch all for everything not included in stocks and bonds. So, what does that mean? Hedge Funds, Real Estate, Private Equity, and the Futures Markets, these strategies represent places where managers have the potential to make money regardless of broad market price action. The managers we use have shown over time that during market stress, they have the ability to divert from classical style box type investing (stocks and bonds exclusively) providing real diversification benefits.

Implementation – Internally our portfolios are built using a building block approach. We build strategies that represent asset classes we want to invest in, from those strategies we use different weights to make up risk dependent models. Systematic Macro is represented by three different managers. We use ETF’s where we can, and mutual funds where we cannot. This strategy, much like dynamic yield, can be used as a standalone strategy or as a building block for a broader portfolio overall.

Why now? The bond market over time has been a place to go for diversification benefits, yield, and safety. (Away from equities) Today, the correlation to equity markets is nearly 1 to 1, meaning when stocks go up, or down, so does your safety bucket/strategy. With diversification no longer represented in fixed income and yields showing significantly less than inflation, holding a basket of bonds for individual investors no longer holds positive value. This will not be forever, but, as our 40-year bond experiment comes to an end, there will be pain as we move to higher interest rates. Our intention is to provide our investors with what we believe is the best potential outcome, more stability, and the diversification they need.

Disclaimer – It should be noted that there is no free lunch. This strategy holds no guarantee and past performance is not indicative of future outcomes.  

Max Morgan, AIF