Macro trading and the art of tactical asset allocation can be lumped into the same category. This is because they both share so many similarities. They are both trying to find the best values on the globe and in several different asset classes. The difference is that most global macro traders are aiming for absolute returns whereas tactical asset allocation is typically only looking for market beating returns and less then market risk.

Tactical asset allocation is a dynamic asset allocation process that essentially tries to allocate capital to where the best potential future returns are. For instance if you have a 25% allocation to US stocks and they are at 12 year lows with the lowest PE ratio in over a decade you would likely believe that now is a good time to be putting more money to work there. A tactical asset allocator would then sell off a percentage of other asset classes in order to put more money at work in US stocks.

Obviously tactical asset allocation has a lot of similarities with global macro investing. The primary difference is that with global macro you don’t feel the need to allocate to any market where you dont think the rewards outweigh the risks.

So what is the difference between global tactical asset allocators and global macro traders? There are two primary differences. One is that most tactical asset allocators have a three to five year time horizon whereas most macro traders will be looking at a few months to a year or so for most of their ideas. Another primary difference is that most macro traders are not trying to only beat their benchmarks but also beat the zero line, meaning that they are aiming for absolute returns.

In the pursuit of higher returns and lower risk global tactical asset allocators try and blend standard asset allocation with the global macro ideas of looking at all asset classes everywhere for the best possible risk to reward opportunities.

All global macro traders can benefit from the models, ideas, and research done by tactical asset allocators. By looking at their methods global macro traders can find more and sometimes better ways to find profitable long term investing opportunities.

It only makes sense to combine the global macro with tactical asset allocation. If you stretch out your time horizon a bit you can find a lot more opportunity that other traders aren’t able to uncover.

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