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Global Macro - Sector in Brief
Investors have moved towards Global Macro, despite a decade of weak performance, in the hope of convex returns. Are today’s market conditions more supportive for macro bets? How can we assess the strategies and managers available?
IN THIS PAPER
A better climate for macro? The underlying reasons for lacklustre performance since 2010 – low rates, quantitative easing, low volatility, mono-directional equity markets – have largely reversed in 2018. Yet 2018 was the third worst year in 25 for the average Global Macro fund, with many managers making the wrong calls or mistiming good bets.
Portfolio strategy. Global Macro managers are frequently sought as part of a package of diversifying strategies, e.g. alongside CTAs, as part of Liquid Alternatives allocations, or within multi manager (FoHF) solutions.
Manager selection. Two key factors determine performance: (1) the hit rate of thematic bets, and (2) how the manager responds when that theme concludes (monetising the gain) or when the bet proves to be wrong (controlling the downside). Investors should consider their tolerance for “lumpiness” in returns; this tolerance can also help to determine whether a discretionary or a systematic strategy may be more suitable.
Short-lived volatility spikes, sharp reversals in equities and commodities, unsuccessful bets on emerging markets and long-EUR/short-USD positions combined to make 2018 the third worst year in the last quarter-century for Global Macro managers.
Yet the year also brought modest inflows for this strategy, bucking the trend of overall outflows from hedge funds. Investors, concerned about the potential end to a ten-year bull market, have been drawn by the promise of convex returns: making money when it matters most, i.e. when equity markets fall.
This brief research note from our Diversifying Strategies team runs through key features and recent developments in this sector – perhaps one of the most diverse and ill-defined groups in asset management – drawing on recent manager research for bfinance clients.
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