Global macro funds implement opportunistic trading strategies to take advantage of shifts in macroeconomic trends. It is the least restricted of all the major hedge fund styles and is often referred to as a ‘go anywhere’ strategy which can potentially create positive investment returns independently of the direction of capital markets, the momentum of the macro economy or shifts in the commodities cycle.
Since the early 90’s, global macro strategies have outperformed U.S. equities and fixed income, providing higher returns with lower volatility. As part of a well-diversified portfolio, global macro may provide the potential for greater returns with reduced volatility.
A portfolio with an allocation of global macro improves total return and reduces volatility when combine with other asset classes.
Breaking Down Global Macro Strategy
Trading strategies are applied to a spectrum of markets, asset classes (stocks, bonds, currencies, commodities) and financial instruments (such as cash, futures, derivatives). Managers reach investment decisions based on their forecasts and predictions of changes in interest rates, inflation, economic cycles and political circumstances.
Once they have identified trends, global macro managers establish positions (long or short) in stocks, bonds, currencies and commodities.
The trading approach is opportunistic and nimble, focusing on the use of highly liquid instruments to facilitate rapid changes in positioning as older trades are reversed and new opportunities are identified.
Arguably, the most significant advantage of global macro hedge funds is their unrestricted trading remit. As individual markets undergo cycles of growth and decline, more focused hedge fund strategies may also experience cycles of profitability. Global macro managers, however, aim to take advantage of these cycles by shifting positions to wherever they believe profits may be available at a certain time.