Benefits of LHG's global macro strategy
1. True diversification to investor's portfolio
Our global macro strategy holds investments around the globe (over 15 different countries), as well as across 5 different asset classes.
Let's use our portfolio as an example – as of May 2021, we were long Alibaba, short the USD against Singapore Dollar, long natural gas, and long the DAX index from Germany.
The portfolio is so diverse, it went from buying a Chinese tech company to buying a commodity traded on the CME to the blue-chip index in Germany.
Why go global?
LHG's opportunistic investment approach efficiently allocate investors' capital to the most trending/best performing markets.
If you look at the chart below, since the bottom of the 2008 GFC bear market, the ASX 200 (Australia) only advanced 138%, and the DAX rallied 350% - compare to a 570% advance in the S&P 500 and (as of June 2021).
2. Lower portfolio volatility than benchmark indices
Remember during the Covid-19 selloff in March 2020, the S&P 500 tanked 35% in a few weeks? You really need to have nerves of steel to hold onto your stocks and sleep well at night.
Good fund managers with solid risk management should be able to steadily increase investor’s equity with minimum drawdowns.
For the 1-year period between October 2019 to October 2020, LHG returned 35% on its investors’ capital with a maximum drawdown of 6.14%, much less volatile than the 35% drawdown occurred in the benchmark S&P 500.
3. Low correlation to the traditional stock and bond markets
On top of what we just discussed, our global macro strategy tends to have very low correlation to the stock or bond markets anyway. We don’t only invest in stocks or stock indexes, but also currencies, commodities, bonds and so on.
We believe 2021 is gonna be the year for commodities, therefore we will allocate a big chunk of our portfolio towards the commodities market, and that can potentially offer much higher return than the stock market. For example, natural gas might go up 20 or 30% in 2021, while the S&P 500 returns -5% for the year.
4. Profit from both rising and falling markets
Unlike traditional mutual funds and private equity funds, our global macro fund takes both long and short positions on different markets. But bear in mind that short-selling is highly risky without proper risk management skills, because theoretically prices of the underlying assets can go infinitely higher and the upside risk is unlimited.
A very recent example is the Gamestop (or GME) saga, when retail investors on reddit decided to collectively inflate the share price of GME and squeeze out short seller hedge funds. GME went from $18 to a high of $480 in a matter of days, causing some hedge funds to lose billions of dollars.
As for us, the brief bear markets of Q4 2018 and March 2020 were some of the most profitable periods for us. Even more importantly, the Gamestop saga is much less likely to happen to our global macro fund. We will explain why in the next point.
5. Ample liquidity, no one could manipulate the market
Our global macro strategy bases its portfolio holdings primarily on a national macroeconomic level. Instead of buying or selling a single stock like GME, we buy and sell the futures contracts of the S&P 500 index, which has a daily average volume of around 200+ billion (US) dollars. Good luck to anyone trying to manipulate that market.
What about the interbank foreign exchange or FX market? The FX market is the largest financial market in the world – even larger than the stock market, with a daily volume of US$6.6 trillion in 2020.
The financial instruments our global macro strategy trades are highly liquid, highly mature markets with significantly less volatility compare to small markets like cheap stocks. No one entity or group can single-handedly manipulate the market, unless you include central banks.
The highly-liquid nature of these markets makes effective risk management possible for us fund managers.
6. Total alignment of interest
Our founder and partners are investors in the global macro strategy.
To sum it up, the key benefits of our flagship global macro strategy includes:
1. Offers true diversification to investor's portfolio;
2. Has lower portfolio volatility than benchmark indices;
3. Has low correlation to the traditional stock and bond markets; 4. Profits from both rising and falling markets; 5. Invests in markets with ample liquidity, no one could manipulate the market;
6. Total alignment of interest - LHG founder and partners are significant investors in the strategy.
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