Updated September 14, 2022

Optimize Your Portfolio with a Global Macro Investment Strategy

It’s widely believed by many financial professionals that in the coming decade stocks and bonds will not enjoy the same strong returns they’ve enjoyed in the recent past. If this prediction comes to pass, it means that you, as an investor, will likely need to turn elsewhere in order to find the yield necessary to reach your financial goals.

Diversifying into alternative asset classes—such as digital assets, commodities, and real estate—is one option you can consider. But it may be possible to get even more out of your portfolio by pairing that increased diversification with a “big-picture,” or “macro” investment strategy, without having to take on any additional risk.

Here, we define what a macro investing strategy is, the different forms that it can take, and explain how it can help you strengthen and diversify your portfolio.

What is a macro strategy?

A macro strategy is an investment strategy that positions its holdings in such a way as to take advantage of large-scale economic factors and trends. Its aim is to see the proverbial “big picture,” and position the portfolio to benefit from the long-term trends already in place or from the ones likely to materialize.

In the purest sense, macro strategies are concerned with issues like interest rates, inflation, unemployment rates, gross domestic product, and other measures of national productivity. But other factors can influence a macro strategy as well, including:

  • Demographic Trends: Such as an aging population, population growth, and rising or shrinking middle class

  • Political Trends: Such as whether the election of a new political regime will lead to more or less business-friendly policies and regulations

  • Industry Trends: Such as sector rotations within the broad market or even the emergence or maturation of new industries like ecommerce, green energy, and big data

  • Technological Trends: Such as the deployment of 5G, the emergence of artificial intelligence (AI), and greater internet connectivity around the globe

A macro strategy can be domestic—focused on the macro-economic trends of a single country such as the United States—or it can be global, spanning multiple countries or regions. Because different countries experience different economic cycles, a global macro strategy can be said to offer greater diversification to your portfolio compared to a domestic macro strategy.

With all of this in mind, a macro strategy may include common assets such as stocks and bonds as well as alternative assets such as commodities, currencies, gold, and more.

Types of Macro Strategy

Macro strategies come in all shapes and sizes. In addition to following either a global or domestic playbook, macro strategies can be either systematic or discretionary. Systematic macro strategies make investment decisions based solely on the output of rules-based quantitative models, whereas discretionary macro strategies, while they might take quantitative models into account, also rely on qualitative information processed by humans. 

Further, macro strategies can base their investment decisions on either fundamental or technical or sentiment analysis (or some combination of all three). And they can be designed with short-, medium-, or long-term considerations in mind. 

Macro Strategy in Action

To help you understand what a macro strategy might look like in action, consider the following examples:

Rising Interest Rates: Growth vs. Value

When interest rates are low and are expected to stay low, growth stocks, which are shares of companies expected to grow faster than the market average, tend to perform well. 

These stocks often appear to be expensive by many of the metrics that investors use to evaluate stocks, such as price to earnings ratio, but investors are willing to pay a premium for the expected growth. When interest rates begin to rise, however, it makes the future growth of these stocks worth less. This often causes investors to cycle away from growth and into less expensive stocks, called value stocks

Thus, an investor who anticipates rising rates may preemptively position their portfolio so that they have less exposure to growth stocks and more exposure to value stocks. 

Boom and Bust: Domestic vs. International Markets

Alternatively, consider the fact that countries around the globe all experience their own economic cycles. Sometimes these cycles align with each other, and sometimes they do not. By identifying which countries are entering periods of economic growth and which are entering periods of economic slowdown, it’s possible to preemptively position a portfolio in order to take advantage of these changes.

For example, an investor who believes the United States is about to enter a recession might shift a portion of her portfolio out of domestic stocks and into international markets that are on the brink of economic expansion. 

Augmenting Your Portfolio with a Macro Strategy

Embracing a macro strategy in your investment approach allows you to increase your diversification, potentially decrease risk, and become anticipatory instead of reactionary to the gyrations of the market. 

Unfortunately, macro investing requires a fairly deep understanding of market trends, cyclical analysis, and economic data. As such, it can be challenging for everyday investors to work a macro strategy into their investment approach. In the past, this has meant macro strategies have largely been available only to those with the resources to hire analysts and hedge funds skilled in macro analysis.

Here at Allio, we select assets for our portfolios based on an analysis of the prevailing macroeconomic conditions. As we believe US stocks and bonds are facing significant headwinds in the intermediate- to long-term, our portfolios are highly diversified and contain exposure to other asset classes such as:

  • Emerging markets, which may offer greater potential for growth

  • Commodities, which may provide a hedge against inflation

  • Gold, which is uncorrelated with equities and tends to perform well when equities perform poorly

  • Equity REITs, which benefit from rising rents and tend to do well during periods of inflation even with rising interest rates

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