There is no alpha out there. Its is a desert of few opportunities matched with more dollars looking for the few opportunities that may exist. It is a beta world with macro bets serving as the style of choice.
We can call macro hedge funds tactical asset allocation in a box. The objective is to generate returns through dynamic adjustment of the beta within the portfolio. Switch between stocks and bonds. Switch between large and small cap, growth and value. The objective is to beat the market at discounting policy alternatives. This is not about judging the quality of policy but acting on expectations of their short-term success. So far, macro has been the style of choice for many investors. The returns have been better than value stock pickers. In a low interest rate environment, there is more value in creating convexity within the portfolio. TAA through macro will be able to do that.
How long will this desert last? It is hard to say because the dominance of policy as a investment driver is still strong. regulatory choices will be the place for value picking. Discounting the cost of regulation on firm will be more important than growth prospects.
We expect that macro investing will last until there is another leg down in the market and handicapping firm failure become important again.
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