Investors are often surprised to hear that while we employ a top-down global macro approach, we do it while using a foundation of fundamental investing—and the surprises don't stop there. Here are five major differentiators between our approach and that of many others.
We Are Top-Down, Fundamental Investors
Many investors assume that macro strategies are all quantitatively driven—they're often surprised to learn that while we employ a top-down global macro approach, we do it using a foundation of fundamental research.
Inherent to fundamental value investing, we analyze markets through a discounted cash flow approach and currencies via a relative purchasing power parity framework, which is based on the notion that an exchange rate ultimately finds its fundamental value and equalizes the prices of goods and services in different countries.
We Go Beyond Fundamental
But while fundamental research is the foundation for how we invest, we don't stop there. While fundamental analysis is absolutely necessary, in this day and age it is not sufficient. As such, we use it as a starting point, then dive deeper, looking for the non-fundamental influences that are moving current prices around.
We cannot be blinded by a longer-term fundamental focus, we must also account for other, near-term influences. If ignored, these thematic or geopolitical “waves” to which the portfolio is exposed have the ability to capsize our “boat” on its longer-term journey toward fundamental value. We must skillfully navigate these waves to prevent this from happening.
We Can Invest Across 125 Markets and Currencies
Another differentiating aspect is found in the breadth of our investment universe. We invest across a global investment palette that includes 125 markets and currencies. Our ultimate goal is to provide equity-like returns with less volatility than equities provide. As a result, our returns tend to be more uncorrelated with traditional investments than the returns from other managers.
We Use Unique Frameworks
Clients often struggle to understand how global macro investors make sense of the hundreds or thousands of different opportunities that may exist at any given time.
How does one create, from these many ideas, a tangible portfolio in a manner that is consistent and repeatable over time? We use unique analytical frameworks—some examples are our use of game theory to navigate geopolitical developments, a proprietary and forward-looking approach to risk management, and active currency management.
We Level the Playing Field
While strategy is ultimately set by our portfolio managers, the entire team has input into every aspect of the process. That allows for the best ideas and the best analytical capabilities to ultimately rise to the top. I discussed this in much more detail previously, because it's an integral part of our approach.
John Simmons, CFA
Senior Investment Strategist, Dynamic Allocation Strategies Team
William Blair Investment Management