Plenisfer Investments I Letter from the CEO: Navigating the secular transition
Can an investment strategy be based on macroeconomic forecasts? This question continues to be hotly debated in the world of professional management.
On the one hand there are the 'big' investors representing the so-called 'value' style (Howard Marks, Warren Buffett, to name but two of the best known), the answer is a definite no. Buffett's sarcastic quip on this subject cuts to the quick: “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
On the other hand, there are the so-called 'macro' investors, including most fixed-income fund managers and asset allocators. The macros include macro hedge funds, that not only seek their returns on predicting rates, indices and exchange rates, but do so by leveraging prospective profits (and losses).
At Plenisfer, 'macro' is one of the five strategies we use to generate target returns (flanked by four others, more bottom-up and idiosyncratic approaches to investing). Our macro is based on the same positions as macro hedge funds, but with one key difference: we don’t leverage.
Plenisfer macro positions are based on solid, medium-term 'value' considerations (e.g. interest rates we judge to be too low for a given context) rather than short-term directional forecasts, where any presumption of competitive advantage is a pipe dream at best.
Macro has another, even greater significance for us. Interpreting the underlying economic and geopolitical picture takes its inevitable place in our strategic toolbox. In fact, we run an 'unconstrained' global strategy, one not adhering to set market benchmarks; one brushed in on a blank canvas, as it were.
For this type of management, we think that macroeconomic analysis is indispensable, because an analysis of long-term trends forms the backdrop for all portfolio choices, not just macro choices in the strict sense, but our stock picking activity as well.
Any successful investment strategy is closely linked to the ability to identify the so-called 'major inflection points' of long-term macro trends. These do not happen very often, sometimes only every two or three decades: today we think we are facing one of these.
What are the elements of this inflection point?