What Is a Global Macro Hedge Fund?

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

Key Takeaways

  • Global macro hedge funds make investment choices based on the broad economic and political outlook for various countries.
  • Holdings might be long or short positions in different equity, fixed income, currency, commodity, or futures markets.
  • The holdings in the funds are often positioned around a specific result of international economic or political issues, but the holdings can also be set up so the fund profits from general market volatility.
  • Global macro strategies are either related to currency, interest rates, or stock or equity indexes.
  • Global macro hedge funds include the discretionary, commodity trading advisor, and systemic categories.

Understanding Global Macro Hedge Funds

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 do not have confidence in a prediction but know that a binary outcome is imminent. Portfolio managers who use global macro strategies typically focus on currency, interest rate, and stock index strategies.

Global Macro Hedge Fund Example

Examples of global hedge fund activity were evident before the Brexit vote in 2016 when the United Kingdom voted to exit the European Union (EU). Global macro hedge funds that felt confident that Britain would vote to leave the EU took long positions in safe assets, such as gold, and chose 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 guessed wrong and took losses on the long position in European stock indexes as the British pound and other assets dipped immediately after the results were known.

Because the funds are typically actively-managed, they tend to require a bigger initial investment and bigger lifetime fees than passively-managed funds.

Special Considerations

Global macro hedge funds offer investors exposure to these high-level bets that span assets and instruments. They offer a form of diversification that is different from most equities making them attractive to investors who seek protection from global financial events that can drag down stock and bond returns in general. Typically, it has been difficult for an individual investor to recreate this type of strategy because of the capital required and the complexity involved in 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 paying the same level of fees.