Global Macro Hedge Fund

What is a 'Global Macro Hedge Fund'

Global macro hedge funds are actively managed funds that attempt to profit from broad market swings resulting from political or economic events. Global macro hedge funds make market bets around such events using financial instruments to create short or long positions based on the outcomes they see as a result of their research. A market bet around an event can cover a wide variety of assets and instruments, including options, futures, currencies, index funds, bonds, commodities and so on. The goal is to find the right mix of assets to maximize returns if the predicted outcome occurs.

BREAKING DOWN 'Global Macro Hedge Fund'

Global macro hedge funds may position themselves around a particular outcome or they can simply set up positions to profit from global market volatility when they don’t have confidence in a prediction but know that a binary outcome is imminent.

Global Macro Hedge Funds and the Brexit Vote

A good example is the Brexit vote setting up the U.K. to exit the EU in 2016. Global macro hedge funds that felt confident that Britain would vote to leave took long positions in safe haven assets like gold and took up short positions against European stocks and the British pound. Global macro hedge funds that were uncertain about the outcome took long positions in safe havens and other instruments that payout during market volatility. Some undoubtedly guess wrong and took losses on long position in European stock indexes, the British pound and other assets that dipped immediately after the results were known.

The Pros and Cons of Global Macro Hedge Funds

Global macro hedge funds offer investors exposure to these high level bets that span assets and instruments. As such, global macro hedge funds offer a form of diversification from most equities, making them attractive to investors that want protection from global financial events that can drag down stock and bond returns in general. Traditionally it has been hard for an individual investor to recreate this type of a strategy due to the capital needed and the complexity of managing all the positions across asset classes and platforms. On the downside, global macro hedge funds have high investment thresholds and even higher fees. Exchange-traded funds (ETFs) have also made it possible for investors to create similarly broad market bets without dealing with the same level of fees.