Macro investing strategy, also known as global macro strategy, is a top-down strategy that aims to profit from macroeconomic trends and events across global markets. Investors identify macroeconomic opportunities through economic analysis of various countries, markets, policies, and events. It is one of the most flexible strategies with the ability to go long or short any asset class including stocks, bonds, currencies and commodities. By having a global perspective and freedom to trade any market, macro investors can generate returns that have low correlation to traditional assets.
Global macro strategy aims to capitalize on macroeconomic opportunities and secular trends across global markets
The key advantage of macro strategy is its flexibility stemming from a top-down global perspective. Macro investors continuously analyze the macroeconomic and geopolitical landscape across countries and regions to identify secular shifts, policy divergences, market events and dislocations that may lead to trading opportunities. For example, a macro investor may short the British pound if he believes Brexit would hurt UK’s economy disproportionately. Or go long emerging market stocks if positive on a region’s economic growth potential. The wide latitude in assessing potential opportunities and ability to go long or short any liquid asset class makes global macro one of the most opportunistic investment strategies.
Global macro strategies employ both discretionary and systematic techniques
Macro strategies can be implemented through discretionary or systematic approaches. Discretionary macro involves a fund manager subjectively interpreting macro data and current events to arrive at trading themes and positions. Systematic macro relies on computer algorithms and quantitative models to identify trading opportunities based on historical data and rules. While discretionary macro is more flexible and can react swiftly to new information, systematic strategies provide more discipline and diversity. Leading macro investors like Bridgewater, Soros and Tudor Investment combine both techniques.
Macro hedge funds hold more concentrated positions but with low market correlation
Since global macro funds take more concentrated bets based on market views, their returns tend to be more volatile. However, with flexible asset allocation and ability to profit from both rising and falling prices, they can generate returns not tied to broader markets. According to Barclays research, macro strategies have averaged 7% annual returns from 1994 to 2013 with just 13% correlation to S&P 500, compared to 7.4% return and 75% correlation for equity long/short funds.
Derivatives are extensively used in macro strategies for leverage and efficient execution
Macro funds rely heavily on leverage and derivatives like futures, options and swaps to implement their trading themes efficiently. Derivatives provide leverage for magnifying returns from small price movements. Their non-linear payoff structure also allows investors to fine tune risk-return profile. Moreover, some macro trades like volatility and credit default swap arbitrage can only be executed using derivatives. Top macro funds have specialized traders to execute complex global trades efficiently, often in a matter of seconds.
The global macro strategy requires experienced managers and strong infrastructure
The flexible go anywhere approach of global macro trading requires managers to be Macro experts with experience across different markets and asset classes. Hedge funds need strong team of strategists providing top-down views and experienced traders to execute complex trades efficiently. They also require robust technology infrastructure for pricing complex instruments, managing risk and seamless trade execution across regions which traditional funds do not need. This results in significantly higher operational costs for running macro strategies.
In summary, global macro is a global top-down strategy that provides unique return streams by exploiting economic trends and events across markets. It requires experienced managers, specialized teams and strong infrastructure to capitalize on worldwide macroeconomic opportunities.