Macro Factor Investing with Style

Investors face similar macroeconomic risks and opportunities regardless of their individual investment preferences. To best navigate growth and inflation concerns, the authors propose building macro factor–mimicking portfolios diversified across asset classes and style factors. They focus on the macro factors growth, inflation, and defensive. Their approach allows for shaping the macroeconomic risk exposure of a given portfolio by applying systematic macro factor completion to effectively address specific economic outcomes. Key Findings ▪ Asset class and style factor returns have clear sensitivities to salient macro factors that can be utilized to build out diversified macro factor-mimicking portfolios. ▪ The authors demonstrate the use of macro factor-mimicking portfolios in a macro factor completion framework to purposefully manage a given portfolio’s macro factor risk exposure. ▪ Important use cases are investors’ positioning in light of negative growth and/or rising inflation scenarios.