Global Macro Offers a Versatile Vantage Point
PGIM Wadhwani’s Dr. Sushil Wadhwani, CBE, highlights how flexible strategies can provide investors targeted solutions when unfolding events raise new questions.
Macro Uncertainty Calls for Agility and Diversification
Dec 9, 2022
PGIM Wadhwani’s Dr. Sushil Wadhwani, CBE, discusses why agile global macro strategies are attractive portfolio diversifiers through rising rates and inflation.
A BUMPY ROAD FOR TRADITIONAL ASSETS
Global markets have taken a beating during most of 2022. Lingering supply chain issues, exacerbated by the war in Ukraine and pandemic-induced shutdowns in China, helped push global inflation significantly higher. As central banks tightened monetary policy in response, fears of recession gripped markets, with stocks, bonds and real estate assets declining sharply throughout most of the year. Meanwhile, commodities generally rallied, although returns were somewhat divergent.
Investment flexibility is likely to remain important over the next 18 months as how to trade going into a recession is different from coming out of it.
AGILE DIVERSIFICATION REMAINS A PRIORITY
With headline inflation likely to have peaked (or to peak soon) in many countries, and central banks tightening at a slower pace, investor hopes of a “soft landing” in the U.S. are likely to rise. On the other hand, a slowing global economy is likely to put downward pressure on earnings forecasts. The outlook for equity markets is therefore uncertain. There are concerns that central banks might implicitly tolerate a higher rate of inflation, and this could undermine bonds.
It is therefore possible that the traditional 60/40 portfolio mode may continue to fare poorly. An agile global macro strategy can isolate diverse and less correlated sources of returns by factoring in regime shifts and profound changes in sentiment or expectations. The ability to go both long and short in various asset classes is an additional advantage, providing flexibility to react nimbly as conditions shift. Global macro has delivered strong absolute returns and relative returns versus stocks, bonds and real estate this year, making it an attractive portfolio diversifier and alternate return source through rising rates and inflation.
Dr. Sushil Wadhwani, CBE
Chief Investment Officer
PGIM Wadhwani
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