Investors are increasingly showing interest in risk premia strategies across asset classes. Carry is one of the most studied premia. To successfully execute a risk premia strategy, it is essential to understand the ways macroeconomic conditions affect individual premia returns. The literature reports that carry strategies are commonly exposed to business cycle, liquidity and volatility risks; however, evidence of direct links has never been clearly established.
This study builds on available research by directly measuring the macroeconomic characteristics of carry factor portfolios, namely real economic growth and inflation exposures. By pairing methodologies commonly used to derive fundamental characteristics of equity portfolios, we are able to identify new macro linkages. Our holdings-based and factor-mimicking portfolio analyses provide insights into the behavior of carry strategies across various asset classes. These findings are relevant for investors and can be used to build multi-asset carry portfolios that are better aligned with their goals.