Industry Voice: Global Macro - A Nimble Strategy for Ongoing Volatility

clock • 9 min read
Michael Dicks, Chief Economist and Deputy Head of Research at PGIM Wadhwani
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Michael Dicks, Chief Economist and Deputy Head of Research at PGIM Wadhwani

"Bonds may no longer offer protection for long holdings in equities, so investors may want to consider systematic macro strategies that seek to go short both equities and bonds when inflation surprises on the high side"

Michael Dicks, Chief Economist and Deputy Head of Research at PGIM Wadhwani, discusses the investment strategy of the PGIM Wadhwani Keynes Systematic Absolute Return Fund and explores how an agile global macro liquid alts strategy could adjust quickly to market volatility, deliver uncorrelated returns and help investors diversify portfolios.

Q. What is the Fund's strategy and what you are trying to achieve for investors? 

A. We strive to offer investors results that can't be achieved through long-only approaches using traditional asset classes. The Fund employs a systematic macro strategy that offers investors diversification from the traditional capital markets through liquid alternative solutions. Our portfolio takes both long and short positions in stocks, bonds and currencies, and seeks to deliver returns that are uncorrelated to equities and bonds over a full market cycle.

We aim to deliver a positive return of the London Interbank Offered Rate, plus 5%, while simultaneously attempting to limit drawdowns, with a volatility target of 7%1. The Fund has held up well over the recent market turmoil. It was ranked first year-to-date out of 880 funds in The Investment Association's ‘Flexible Investment' category and third over one year out of 847 funds.2 That builds on a seven-year track record of the Fund achieving its targeted information ratio. Past performance does not predict future returns.

Q. What is the make-up of the Fund's investment team?

A. Dr. Sushil Wadhwani, CBE, Chief Investment Officer, leads a team of about two dozen investment professionals. Dr. Wadhwani has more than 30 years of investment experience3 and sat on the Bank of England's Monetary Policy Committee before founding the London-based multi-asset macro specialist now known as PGIM Wadhwani.

Q. How are you positioning the portfolio in these uncertain times?

A. Uncertainty is good for our strategy. A volatile environment marked by macro-economic and, especially, policy uncertainty represents an ideal backdrop for our approach. The Fund's success through the first nine months of 2022 drives the point home considering how volatile this year has been.4

Portfolio positioning reflects our scepticism regarding policy. Our models were sceptical that policymakers would be able to deliver a soft landing. As a result, we've been short on the front end of the yield curve in fixed income, short equities and long the dollar - and we still have these positions today.5

Q. Do you expect positive demand for liquid alts and the Fund's approach in 2023? If so, why?

A. Yes, we see positive demand trends continuing. Traditional investors are being forced to face the fact that bonds have not protected their equity holdings this year because inflation turned out to be higher than expected. Policymakers are admitting that it will take time to get inflation back under control. Even when that happens, it is not clear that fixed income will necessarily be a good hedge moving forward. It may be that interest rates trend higher, reversing the trend we've seen over the past several decades.

Bonds may no longer offer protection for long holdings in equities. So investors may want to consider systematic macro strategies that seek to go short both equities and bonds when inflation surprises on the high side.

Thanks to directional trading and the ability to diversify across investment styles, strategies and asset classes6, our systematic macro approach was able to defy prevailing trends this year through September4, a period in which a traditional 60/40 portfolio would have declined 23.5%7.   

To learn more, please visit our liquid alternatives website.

 

This post is funded by PGM Investments

1Target objectives and downside protection cannot be guaranteed
2Source: The Investment Association, calculated by Morningstar, as of 31 July 2022.
3 Source: PGIM Wadhwani, as of 30 September 2022.
4Past performance does not predict future returns
5All holdings and/or allocations are subject to change.
Diversification does not assure a profit or protect against loss in declining markets.
7Morningstar Direct, PGIM Wadhwani as of 30 September 2022. 60/40 represented by 60% S&P and 40% Bloomberg U.S. Aggregate Bond Index

Risks: An investment in the Fund involves a high degree of risk, including the risk that the entire amount invested may be lost. The Fund is primarily designed to purchase certain investments, which will introduce significant risk to the Fund, including asset performance, price volatility, administrative risk and counterparty risk. No guarantee or representation is made that any Fund's investment program will be successful, or that such Fund's returns will exhibit low correlation with an investor's traditional securities portfolio.

The Fund may be deemed to be a speculative investment and is not intended as a complete investment program. Investment in the Fund is suitable only for persons who can bear the economic risk of the loss of their investment and who meet the conditions set forth in the Fund Documents. There can be no assurances that the Fund will achieve its investment objective. Prospective and existing Shareholders should carefully consider the risks involved in an investment in the Fund, including, but not limited to, those discussed in the Fund Documents. Prospective and existing Shareholders should consult their own legal, tax and financial advisors about the risks of an investment in the Fund. Any such risk could have a material adverse effect on the Fund and its Shareholders.

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In the United Kingdom, this is a financial promotion issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority ("FCA") of the United Kingdom (Firm Reference Number 193418). In the European Economic Area ("EEA"), this is a financial promotion may be issued by PGIM Netherlands B.V., PGIM Limited or PGIM Real Estate Luxembourg S.A. depending on the jurisdiction. PGIM Netherlands B.V., with registered office at Gustav Mahlerlaan 1212, 1081 LA, Amsterdam, The Netherlands, is authorised by the Autoriteit Financiële Markten ("AFM") in the Netherlands (Registration number 15003620) and operates on the basis of a European passport. PGIM Real Estate Luxembourg S.A., with registered office at 2, boulevard de la Foire, L-1528 Luxembourg, is authorised and regulated by the Commission de Surveillance du Secteur Financier (the "CSSF") in Luxembourg (registration number A00001218) and operating on the basis of a European passport. In certain EEA countries, this is a financial promotion, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Limited, PGIM Netherlands B.V. and/or PGIM Real Estate Luxembourg S.A. to persons in the UK who are professional clients as defined under the rules of the FCA and/or to persons in the EEA who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). PGIM Limited, PGIM Netherlands B.V. and PGIM Real Estate Luxembourg S.A. are indirect, wholly-owned subsidiaries of PGIM, Inc. ("PGIM" and the "Investment Manager"), the principal asset management business of Prudential Financial, Inc. ("PFI"), a company incorporated and with its principal place of business in the United States. PFI of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. PGIM, the PGIM logo and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide. PGIM Fixed Income and PGIM Real Estate are trading names of PGIM an SEC registered investment adviser in the United States. Jennison and PGIM Quantitative Solutions are trading names of Jennison Associates LLC, and PGIM Quantitative Solutions LLC, respectively, both of which are SEC registered investment advisers and wholly owned subsidiaries of PGIM. Registration with the SEC does not imply a certain level or skill or training.
The information in this article is for informational or educational purposes. The information is not intended as investment advice and is not a recommendation about managing or investing assets. In providing these materials, PGIM is not acting as your fiduciary.
The PGIM Wadhwani Keynes Systematic Absolute Return Fund is a sub-fund of PGIM Funds plc, an investment company with variable capital incorporated with limited liability in Ireland and established as an umbrella fund with segregated liability between sub-funds pursuant to the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations, 2011, as amended.
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