Beating the market for one year can be seen as a fluke; two years can be considered lucky. But, when investors and their funds beat the market for decades, the best thing that Main Street can do is try to get the best insights into the strategies and frameworks being used in these outperforming funds and attempt to recreate them for their own capital.
This is where the list of the best-performing funds for 2024 comes into play, as these have been the same funds to outperform the market over the past decades as well. Books and university case studies have been written on these managers and their stories, so investors know that they are getting a tremendous bargain in today’s analysis behind the secret formula.
Funds like D.E. Shaw, Bridgewater Associates, Satar, and Broad Reach Master all clocked in over 24% returns this year by following one simple strategy. What’s now known as global macro is the simplicity of Wall Street’s best minds during a time when the advent of artificial intelligence and quantum computing might erase shorter-term opportunities in the market. Here’s how Main Street can copy them by following the price action assets like the iShares 20+ Year Treasury Bond (NASDAQ: TLT ), the iShares Russell 2000 ETF (NYSE: IWM ), and many others.
Global Macro: The Heart of the Strategy
Ray Dalio is the one who perfected this method, and there are several books about him and his views on the markets and investing. As his fund, Bridgewater Associates, clocked in an astonishing 35% performance over the past 12 months, investors should pay attention.
His core belief is in correlation and volatility regimes, which are not even close to what they were 20 or 30 years ago. The days of individual price action are gone when an investor could look at bonds and gold as two different assets and trade them in complete unison, for example.
Now, with the availability of data and information, one uptick in bonds might mean a few ticks in gold and every other asset in between them. The only issue is that algorithms relying on the most advanced artificial intelligence today have wiped out some of these short-term trading opportunities, leaving traders with one choice.
Using a global macro approach, which focuses on 60- to 90-day correlation cycles, these traders can beat the machines by understanding what would cause a new correlation swing to the upside or downside. With this in mind, here’s an example of how investors can trade like these global macro experts in 2025.
The Bond and Small Caps Story
Typically, when bonds rally (and their yields fall), interest rate-sensitive assets like small-cap stocks tend to rally along with the bonds. This is because global macro traders connect the dots between falling yields and better financial conditions for domestic businesses and consumer activity.
This would mean that correlations between the two assets should be positive on average, so when they break down, as they do today, opportunities will abound for savvy investors. As of January 2025, bonds and small caps traded lower and converged at a bottom range to follow these positive correlations.
However, small caps have recently diverged to the upside to break this regime and bring their correlation to bonds into negative territory. This means investors have an opportunity to trade the correlation swing back to normal positive levels, and that's where the second part of the strategy comes into play.
Understanding the market's narrative is key here, as a correlation regime change would mean either bonds or small caps rallying. If small caps rally, it means the economy will see more inflation ahead, and if bonds rally, then a softening will probably occur.
Analysts at Goldman Sachs recommended that people buy bonds in their 2025 macro outlook report and cited some potential tail risk in the SPDR® S&P 500 (NYSE: SPY ) to support this recommendation. Of course, they went a step further, though.
In order for this rotation to happen, there needs to be a currency swing as well, which is why they also recommend manufacturing and energy stocks. No wonder hedge funds have been buying into oil futures, and why Warren Buffett bought up to 29% of Occidental Petroleum (NYSE: OXY ).
Investors can learn this lesson from the best performers in 2024: They should always follow the correlations between all markets, spotting a shift before it happens and profiting handsomely from it.
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