Global Macro

Global Macro Hedge Funds are directional and invest anywhere on the planet. They seek to capitalize on any possible positive or negative economic trend. The primary difference between Global Macro funds and other funds is the massive amount of freedom. They can use any accessible investment, in any available market, in any region. They can also select any available strategy. Their options are purchases, sales, short sales, swaps, arbitrage strategies, and even more. Funds may develop strategies using only investor’s funds or take highly leveraged positions. Thanks to low regulations on hedge funds, global funds are essentially limited only by restrictions stated in their prospectus.

Global Macros are almost universally top-down funds. They focus on major trends that affect whole economies, pursuing the trades that will be most fruitful from a long or short position. The opportunities predicted based on economic expectations control where the fund invests money. Macro-economic indicators are used to determine these predictions. This includes gross domestic product, currency exchange rates, trade balances, interest rates, inflation, consumer spending, and other factors. They may also review micro-economic factors for a focused region before investing.

Global Macro: Trend Based Investment

Individual firms, assets, and instruments are analyzed to determine which should be used to capitalize on positive or negative trends. Funds will choose the best instrument, derivative, or vehicle for the purpose out of any option available. The manager’s alpha depends on their selection’s ability to fulfill the role desired, strategy for extracting profit from the asset, and the suitability of their market timing.

Global Macro: Potential Overlaps

This diversity in trading options does have downsides. Since managers can select literally anything, they may select investments that are the same as your personal holdings or other hedge funds that you’ve entered. This potentially increases your correlation to other investments, which is great if they’re all encountering positive returns, but harmful when losses are suffered. Knowing the fund’s trading positions are the only way you will know if overlaps are occurring, but funds often refuse to give lists of investments held to investors.