Whilst headwinds of the past several years may continue to present some issues, we continue to expect highly skilled discretionary macro managers to meet return expectations. If the environment becomes more conducive, and we have seen some early indication of this, the strategies could well experience greater than expected returns over the next couple of years.
We discuss five strategic cases for including skilled discretionary macro hedge funds in portfolios. Those discussed are:
- Shape of return distribution. Showing that return distributions generated by the top tier of discretionary macro managers demonstrate an attractive profile with a relatively large right tail, small left tail and positive central returns.
- Absolute return: Showing that skilled discretionary macro managers deliver attractive absolute levels of return.
- Diversification: Showing that overall, skilled discretionary macro managers have low correlations with traditional betas and with other hedge fund strategies.
- Performance when other strategies are struggling: Showing that when skilled discretionary macro managers have performed relatively well in difficult market environments
- Discretionary macro managers have many levers to generate returns that should reduce cyclicality and correlation in the return stream: Showing that discretionary macro strategies provide access to a wide range of return streams across traditional asset classes, emerging markets and alternative risk premia.