Macro investing strategy refers to a top-down global approach to taking advantage of economic trends and events. Macro hedge funds like Soros and Bridgewater are masters of macro investing. There are two main types of macro funds: discretionary and systematic. Discretionary global macro funds bet on macro events based on human judgment. Systematic global macro funds rely on algorithms and quantitative models. Macro investing requires strong analytical abilities to identify macro opportunities and excellent execution skills to implement trades efficiently. Macro funds can invest across all asset classes globally with high leverage. The returns of macro funds depend on fund managers’ macro views and risk appetite.
Discretionary global macro funds rely on human judgment of economic and political events
Discretionary global macro funds take a discretionary approach based on fund managers’ subjective assessment of macroeconomic and geopolitical events. For example, Stanley Druckenmiller made a profitable short on the British pound before the UK’s exit from the European Exchange Rate Mechanism in 1992 based on his judgment that the pound was overvalued. Discretionary macro funds tend to place concentrated bets on a few macro themes.
Systematic global macro funds use algorithms and models for trading
Systematic global macro funds rely on quantitative models and algorithms for trading. For example, trend-following CTAs identify and trade market trends using algorithms without human intervention. Systematic macro funds make hundreds of small diversified trades to exploit risk premiums like value, quality, and volatility across global markets.
Macro funds can invest flexibly across all assets with leverage
Global macro funds have a flexible mandate to invest long or short across all liquid asset classes globally, including equities, rates, credit, commodities and currencies. Macro funds rely extensively on derivatives like futures, options and swaps to implement their views by generating leverage and exploiting nonlinear payoffs.
Macro funds require strong analytical and execution capabilities
Successful macro investing requires sharp top-down analytical abilities to identify macro opportunities and shifts. It also requires solid execution skills to implement complex global macro trades efficiently. Large macro funds have specialized teams covering different regions, asset classes and execution.
Macro returns depend on managers’ macro views and risk appetite
Unlike market-neutral funds, macro returns rely heavily on managers’ macro views and risk-taking. Macro funds with aggressive bets can generate high returns but also suffer significant drawdowns when their macro calls are wrong. Conservative macro strategies tend to have lower but steadier returns.
In summary, global macro is a flexible top-down strategy that aims to profit from economic trends and events. Macro hedge funds can be discretionary or systematic in their approach. Successful macro investing requires strong analytics to identify opportunities and execution skills to implement trades globally across all asset classes, often with substantial leverage.