Investors have been putting Global Tactical Asset Allocation
strategies on the firing line because of disappointing
performance, but it may be fund managers lack of
uniformity thats troubling them.
According to eVestment, investors pulled $18 billion from
the category in the first three quarters of 2016. The trend has
continued this year, with the $13.2 billion Orange County
Employees Retirement System pulling the plug on its $791
million GTAA allocation just last month.
Funds that use GTAA strategies are broadly
diversified, with managers often switching between asset
classes globally and using a variety of techniques such as
derivatives and futures contracts. The problem may be that the
strategies have too little in common, leaving investors
confused and with more room to be disappointed by results when
comparing performance, according to research produced for
Institutional Investor by investment research firm Markov Processes
Given the disparity in products that can reasonably
fall under the GTAA umbrella, it may be particularly difficult
for investors to understand what theyre getting in any
given product and how--or whether--it fits with their overall
portfolio objectives, says Megan Woods, the Markov
analyst who conducted the study.
Markov Processes International, or MPI,
analyzed 10 of the most widely used GTAA funds between October
2012 and December 2016 and found low correlations between them.
Nine were mutual funds, including BlackRock Global Allocation,
GMO Benchmark Free Allocation III, Ivy Asset Strategy, J.P.
Morgan Global Allocation, PIMCO All Asset All Authority fund
and PIMCO All Asset fund, Invesco Macro Allocation, John
Hancock Global Absolute Return fund and William Blair Macro
Allocation. Bridgewater Pure Alpha was the sole hedge fund in
Many investors allocate money to GTAA to mitigate volatility
in their portfolios. The Hancock fund, sub-advised by Standard
Life Investments, was far less volatile than others in the
group analyzed by MPI, while the Ivy Asset fund fluctuated much
more than the rest. The two funds also represented extremes
when it came to measuring the largest cumulative loss across
consecutive months in the 10 years through 2016. The John
Hancock fund lost a maximum 6.3 percent by that measure; Ivy
lost 21.3 percent.
As part of its research, MPI dug into the sectors the funds
selected for investment. Again, they differed significantly.
For example, net fixed income exposures ranged from less than
10 percent in some cases to almost the entire portfolio. And
when it came to annualized performance, they ran from the top
quartile of their peer group to the bottom, though a benchmark
portfolio of 60 percent U.S. equities and 40 percent U.S. bonds
beat all 10 funds from October 2012 to December 2016.
For those funds with long enough track records, MPI analyzed
their performance from January 2007 to the end of December
2016, this time capturing their results during the 2008
financial crisis. All of the mutual funds that used GTAA
strategies lost less than a global 60/40 portfolio, testament
to their stated objectives of providing less volatility than
the overall market. And as has been well publicized over the
years, Bridgewaters Pure Alpha produced a positive return
between November 2007 and February 2009.
Though many investors claim to want GTAA funds because they
offer diversification and lower volatility, they havent
always stayed long enough to benefit from these
characteristics. MPIs analysis shows that many GTAA funds
can soften the blows of a market downturn.