Alpha plays don’t come much purer than GTAA, but the user experience so far has been mixed, as CATHERINE JAMES discovers.
Global tactical asset allocation (GTAA) has never been an entirely new-fangled investment style. It has morphed into the strategy it is today over some 30 years. Broadly speaking, it means taking a short to medium term look at markets across the globe, and taking bets on comparative value, both between countries and within countries, of equity markets, bond markets and currency.
The volatile, and more or less leveraged strategy has huge potential upside, and equally fantastic downside. Today funds that wear a GTAA badge are classed as hedge funds, although they are arguably more readily embraced than some hedge fund strategies as they not only generate absolute returns, but they are usually transparent, are easy to evaluate at any point, and in most cases, are providers of instant liquidity.
Managers operating a solely GTAA strategy grew as the practice of using tactical asset allocation across an investor’s entire investment pool diminished. In other words, instead of a fund slightly adjusting its strategic or long term distribution of assets to take advantage of short-term changes in the markets, specialist managers were given a small amount of the total capital to invest across a variety of global markets, assets classes and currencies.
GTAA managers, which tend to be divisions of well-resourced global institutions, operate in different ways but somewhat systematic processes, using derivatives to pairs-trade, are a common theme. Mellon’s GTAA fund, for example, does not invest in commodities, emerging markets and inflation-linked bonds, nor does it select stocks or take style or sector bets. Its main decisions typically are 30 per cent stocks versus stocks, 30 per cent bonds versus bonds, 30 per cent currency and only 10 per cent stocks versus bonds. An allocation to such a manager can tilts a fund’s asset allocation at the margins without having to revisit the long-term plan each time.
But the big-name GTAA funds appear to be quietly closing to new investors, as quietly as GTAA evolved. Mercer chief investment officer Russell Clarke says it’s not easy to access a good manager in this field, and furthermore most of them are close to capacity. “There aren’t a lot of managers that have really good credentials around these sorts of processes,” he says. “It’s not like you can go out tomorrow and put a swag of money away because a lot of the good ones are already closed or close to closing.”