The enormous Covid19 shock to global markets coupled with a fierce US election contest and de-globalisation are a boon for macro-investors, whose dynamic trading styles were muted in the steady, predictable movements of the last decade.
“Previously, the environment was very difficult for us to trade,” Pablo Calderini, president and chief investment officer at Graham Capital Management said during an interview at Investment Magazine’s Absolute Returns Conference on Wednesday.
“But this year we see tremendous opportunity, because there are many different patterns in markets and opportunities to exploit,” he said.
Dynamic views on the US dollar, the predictable rally in gold, and the sharp change in interest rate differentials are just some of the trades macro investors have taken advantage of in recent months.
As elections occur and global trade relationships falter, Calderini pointed out very liquid markets are the best places to implement real-time macro views that change quickly.
“The potential for a very difficult contested US election will introduce a lot of volatility and uncertainty into US assets, and particularly the dollar,” Calderini said.
“And as macro managers we can be tactical and trade fast, with time horizons looking to the next two weeks or two months, so we can exploit this kind of volatility without having fundamental views on an election outcome or central bank policy.”
That said, Calderini expects the US dollar and gold to see the most action as de-globalisation gathers pace.
“Elements of de-globalisation have already impacted the dollar, which is why it’s weak and will get weaker, but it will remain the only truly global asset that investors will need to have for many years to come,” he said.
Correlation remains a substantial issue for both capital allocators and macro traders, with bond yields compressing so much that traditional diversification strategies often become futile.
“I don’t see how bonds can offer a proper hedge in your portfolio any longer,” Calderini said.
“And while gold may have a role instead, you can never ever have as much gold in your portfolio as you would bonds, that would leave everything very unbalanced.”
Instead, Calderini suggested a tactical approach using a multitude of different asset classes, like a combination of basis point changes, nominal bonds, gold and currencies like the Japanese Yen or the Swiss franc.
“From a trading point of view, there are many opportunities in assets that perform well when equities markets are under stress,” he said.
One way to take advantage of real time changes in macro-views is to ‘trend follow’, which Calderini said can offer some diversification and are cheaper than buying long-put options, for example.
“Trend following tends to perform really very well when various markets have strong auto-correlations,” he said.
“But the beauty of trend following means if a selloff or correction were to happen in a standard way, then trend following in a bear market isn’t that expensive.”
As the effects of the Covid19 crisis are yet to fully bear out on economies and markets, Calderini said it pays to be in the business of beta timing.
“When markets are quiet or bottomless, it’s hard to have conviction and deploy capital,” he said.
“This year things can be the complete opposite in three months time, so there are many opportunities to exploit, and I see no reason to think it will be over soon.”