Company Background | SOM Macro Strategies
SOM Macro Strategies was established by Alan Brazil, a former strategist at Goldman Sachs, after his departure from the firm to independently publish his State Of the Market (SOM) reports. These reports are the outcome of fundamental economic analysis of macro trends likely to impact various asset classes and markets. This framework aids in identifying strategies offering investors asymmetric returns with anticipated high Sharpe ratios.
Key Contributor | Alan Brazil (Founder)
Before founding SOM Macro Strategies, Alan Brazil amassed several years of experience at Goldman Sachs, where he led different research groups, including macro and cross-asset strategies. He also worked at Lehman Brothers in the 1990s and holds a PhD in Economics from the University of Chicago.
In 2007, Alan initiated a strategy group at Goldman Sachs, providing internal and external investors with insights into macro trends. Clients valued his perspectives as unique compared to their existing sources of macro analysis. Alan's blend of economist, trader, trading desk risk manager, and researcher viewpoints helped create a coherent macro view and offered asymmetric trade ideas for these trends.
Over time, many of these views and recommended positions have proven successful. One notable instance was in November 2011 when the Wall Street Journal featured an article on my bearish stance on European Banks, contrary to the prevailing house research opinion. Alan's success can be attributed to insights gained from renowned investors worldwide, ranging from long/short equity hedge funds to large asset managers. One crucial lesson was recognizing the catalyst driving trade realization.
Our take on SOM Macro
What particularly appeals to us about SOM Macro is Alan Brazil's blend of extensive experience and independent thinking that he offers clients. While numerous research providers claim independence, few truly offer unique sell-side products or break away from mainstream narratives. During his tenure at Goldman Sachs, Alan was known for identifying market opportunities that others overlooked.
We often disagree, but in a good way
Our in-house market perspectives sometimes differ from Alan's, including investment timeframes, execution, and entry levels. We view this as complementary rather than contradictory to shaping our views. For instance, Alan is currently bullish on US regional banks compared to larger ones. We hold the opposite view, though we express it differently and at different entry points.
How the sell-side does it
Many sell-side investment recommendations emphasize trade entry levels with predetermined stop-loss and targets within a model portfolio strategy. However, practical constraints like capital usage and expected timeframes are often disregarded. Sensible strategists generally measure returns and Sharpe ratios at the portfolio level, not individual trades. This approach strikes a balance for absolute return investors (hedge funds) and long-only asset managers.
How we (occasionally) do it to illustrate key themes and ideas
A few times a year, we present trade ideas primarily to illustrate trends and enduring themes spanning months and years. Considering the diverse investment mandates of our followers, we usually adopt a highly passive approach, evaluating each trade/investment idea over a 1-year timeframe. This aligns with the reality for most private individual investors.
How SOM Macro does it differently…
SOM Macro adopts a distinct approach: Each idea begins with 4/5 fundamental reasons or catalysts for the trade to perform, without an explicit time horizon, targets, or stop-loss. Trades are closed independently of profits or losses when the initial reasons or catalysts are no longer valid or have materialized. For instance, in 2021, Alan was among the earliest advocates of non-transitory inflation. While most experts cited supply-chain issues and pent-up demand, Alan's centered his thesis on tighter labor markets, wage hikes, rising house prices, and reduced consumer debt when accounting for inflation. These reasons remain valid even two years later.
…but it works in terms of performance!
Although Alan's approach contrasts with both retail and professional investors, his model portfolio has performed admirably in terms of absolute and risk-adjusted returns.
How it can be improved
Our main critique of SOM Macro pertains to its limited publication frequency, averaging around 20 reports annually, primarily consisting of charts with minimal explanatory text. We might address this by pooling resources to organize exclusive regular calls for our members. Alan adopts a pragmatic stance, aiming to provide a service in accordance with client and market demand.
It boils down to personal taste and preferences
While we personally lean towards bottom-up analysis when forming our views, we acknowledge the dominance of the classic top-down macro approach in the macro and cross-asset investment communities. Alan's specialization in US mortgages is an area where he contributes significant value.
Recent SOM Macro Strategy reports to download
Here are Alan's most recent reports:
Let us know what you think. Would you like SOM Macro to become a regular feature on Speevr?
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