When Adding Alternatives, Don't Overlook Global Macro

The Unlimited HFGM Global Macro ETF (HFGM) is positioned as a diversification vehicle for investors seeking alternatives to traditional stocks and bonds, particularly in challenging market environments. Launched mid-April, HFGM aims to replicate global macro hedge fund strategies by taking long and short positions across equities, fixed income, currency, and credit markets, capitalizing on macroeconomic trends and mispricings globally. While offering the tax efficiency and fee savings of an ETF, it provides similar returns to the hedge fund sector but with twice the volatility, appealing to those looking to reduce portfolio dependence on U.S. equity and bond performance.

Analysis

The Unlimited HFGM Global Macro ETF (HFGM) is presented as a liquid alternative designed to replicate global macro hedge fund strategies for investors seeking diversification from traditional stock and bond portfolios. Launched in mid-April, the fund employs a proprietary, data-driven model to identify and replicate hedge fund managers' long and short positions across equities, fixed income, currency, and credit markets using futures and ETFs. While the strategy offers the structural benefits of an ETF, such as tax efficiency and a lower fee structure compared to direct hedge fund investments, it explicitly targets returns similar to the hedge fund sector but with twice the volatility. This elevated risk profile is a critical feature of its design, which aims for outperformance. The fund is managed by Bob Elliott and carries a 1.00% management fee. Its positioning as a diversifier is particularly highlighted in the context of the correlated asset class drawdowns observed in 2022, offering a vehicle to potentially reduce dependence on U.S. market performance.

Key Decisions for Investors

• Investors seeking non-correlated returns and diversification away from U.S. equities and bonds could consider HFGM, given its global macro mandate and use of long/short positions across multiple asset classes.
• The fund's explicit target of twice the volatility of the hedge fund sector it tracks presents a significant risk-reward proposition that must be carefully evaluated; this vehicle is suited for investors with a high tolerance for volatility who are seeking amplified exposure to this strategy.
• Given its recent mid-April launch, the fund has a very limited track record, so it would be prudent to monitor its performance, tracking error, and volatility relative to its stated objectives before making a substantial allocation.
• The 1.00% management fee should be weighed against the potential for alpha from its replication strategy and compared with other liquid alternative ETFs, as this fee is at the higher end for an ETF product.