Global Macro Strategy

A global macro strategy is a hedge fund or mutual fund strategy that bases its holdings — such as long and short positions in various equity, fixed income, currency, commodities and futures markets — primarily on the overall economic and political views of various countries or their macroeconomic principles. For example, if a manager believes the United States is headed into recession, he might short sell stocks and futures contracts on major U.S. indices or the U.S. dollar, or seeing big opportunity for growth in Singapore, might take long positions in Singapore's assets.

Global macro funds build portfolios around predictions and projections of large-scale events on the country-wide, continental and global scale, implementing opportunistic investment strategies to capitalize on macroeconomic and geopolitical trends. Global macro funds are considered among the least-restricted funds as they generally place any type of trade they choose using almost any type of security.

There are various generalized types of global macro funds that exist, most of which aim to profit on systemic and market risk factors. Discretionary global macro funds construct portfolios at the asset-class level based on a top-level view of the global markets. This type of global macro fund is considered the most flexible as managers can go long or short with any type of asset anywhere in the world.

Commodity trading advisor (CTA) global macro funds use various investment products but rather than creating portfolios based on top-level views, these funds use price-based and trend-following algorithms to help construct portfolios and execute the fund's trades.

Systematic global macro funds use fundamental analysis to build portfolios and execute trades using algorithms. This type of fund is essentially a hybrid of discretionary global macro and CTA funds.

Global macro funds generally use a combination of currency-based, interest rate-based and stock index-based trading strategies. Within the context of currency strategies, the funds typically seek opportunities based on the relative strength of one currency to another. Funds monitor and project economic and monetary policies around the world and make highly leveraged currency trades using futures, forwards, options and spot transactions. Interest rate strategies usually invest in sovereign debt, making directional bets as well as relative value trades. Regarding stock index strategies, global macro funds make country-specific directional bets on market indices using futures, options and exchange-traded funds (ETFs). Commodity index trades are also included in this category. Certain global macro funds employ strategies focused on only emerging market countries.