Over the hedge

Special Commentary

March 3, 2023

A periodic exploration of topics in the hedge fund industry from the Truist Investment Advisory Group

Global Macro: Renewed opportunity

Global macro has been the best performing hedge fund strategy over recent years.

Zoom in: For most of the last decade, near-zero interest rates and benign inflation created an environment in which the asset classes typically associated with global macro, particularly global fixed income, foreign exchange and commodities experienced little volatility.

  • This made it difficult for global macro managers to generate returns, paling in comparison to those generated prior to the Great Financial Crisis (GFC).

However, the global environment has become favorable for macro hedge funds.

  • Global central banks are more active, inflation has been elevated and geopolitical risks have risen, driving a recovery in performance
  Global macro annualized returns. January 2000 through December 2009, 7.6%. January 2012 through December 2019, 1.2%. January 2020 through December 2022, 7.3%

Most importantly, global macro strategies can provide valuable diversification benefits to portfolios, given the unique array of asset classes and investment methodologies used.

  • Additionally, the current market environment should provide a performance tailwind.

The Micro on Macro

What is global macro investing?

Despite being one of the oldest hedge fund investment strategies, global macro can still be somewhat difficult for investors to understand. Given its “go anywhere” approach, it has been the preferred investment methodology of some of the world’s best known and most talented money managers including George Soros, Louis Bacon and Paul Tudor Jones.

Although it can encompass virtually any asset class, its primary markets of focus are:

  • Currencies
  • Sovereign bonds
  • Interest rates
  • Commodities
  • Equity indexes

One thing that many of these markets have in common is liquidity. Typical global macro asset classes are some of the most liquid in the world as measured by daily trading volumes.

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