Macro data and why it's more important today

I was recently reading a post by Man Numeric, on how investors can use systematic strategies to navigate an uncertain macro environment. (Black Box + Glass Box: Using Creative Systematic Risk Modelling to Navigate an Uncertain Macro Environment) The chart below jumped out at me. Equity returns have never been more aligned with the macro environment!

But what's the reason? Equity investors are always looking for Alpha - or how much a stock will beat the wider market. This difference surely comes from careful evaluation of fundamentals, and investing in good long term businesses?

Well, after a discussion this week with Matt Mark from the Macro Specialist Designation, I learned that average holding period of securities has shrunk from 5+ years in the 2nd half of the 20th century, to ~6 months today. With a longer holding period, company fundamentals like valuations and earnings matter far more – as you can expect to hold the security through the entire business cycle, and in many cases several business cycles.

However, with shorter holding patterns investors are more likely to be exposed to the macro environment and business sentiment. This is backed up by data from SocGen - who have this data going back 100+ years. With these short holding periods, factor analysis is more important - finding whether a company is likely to perform well in the current market environment, rather than the long term.

?What this means is that investors now need access to better macro data, being able to find and backtest it effectively - particularly within the context of sector and asset class rotation.

These skills can be learned through the Macro Specialist Designation course (I highly recommend). Learning about Macro data sets is included in the 1st part of the course, and all candidates will be provided with a free Macrobond license for 6 months, so you can put that knowledge into practice.

William Peters

Director, Quant Products and Data Specialist

[email protected]

www.macrobond.com