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Global Macro

Global Macro Hedge Fund Strategy

Global Macro Hedge Fund Strategy

Global Macro FundGlobal Macro is a relatively volatile hedge fund strategy that attempts to profit from shifts in the market due to economic, political, or government related events. Many times these hedge funds use leverage and produce returns that are not highly correlated with the public equity markets. Hedge fund managers use indexes, equities, etfs, bonds, and other asset types while using this strategy.

Managers of global macro hedge funds try to anticipate changes in global macroeconomic trends and make bets to profit from them. They are able to allocate capital across asset classes, sectors and regions. It is perhaps the widest mandate of all hedge fund strategies as managers can take a position in any market and instrument. It is therefore no surprise that managers of global macro hedge funds have very different approaches and trading styles. Some managers will design trades based on their subjective opinion of market conditions (called discretionary approach), while others will use quantitative or pre-defined rules to do so (called systematic approach). And others will use a combination of both methods. However, all global macro managers are linked by the international scope of their strategies, the use of leverage and a primary focus on structural macroeconomic imbalances and trends.

Global macro trading strategies primarily fall under two categories: directional and relative value. In a directional trade, a manager will bet on discrete price movements, such as long US dollar, short gold or long Indian government bonds. On the other hand, relative value trades are structured by pairing a long and short position in similar assets to take advantage of a relative mis-pricing. For example, a manager can go long Indonesian government bonds and short Philippine government bonds

One of the most famous global macro trades is a relative value trade designed by George Soros, who bet that the UK would be forced out of the European Exchange Rate Mechanism (ERM) in 1992. So, he borrowed the sterling pound and converted it into a mixture of Deutschmarks and French francs. On September 16th 1992, known as Black Wednesday, Soros’ bet paid off when the pound fell below its minimum level in the ERM. It is this trade that earned Soros the title of ‘the man who broke the Bank of England.’

Soros and several other star global macro managers such as Julian Robertson, Lewis Bacon and Bruce Kover have generated outsized returns. In fact, on average, the performance of global macro funds has been relatively strong, as they have produced high absolute returns, outperforming traditional asset classes.

Books Related to Global Macro Hedge Funds

  • Drobny, Steven. Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets. New Jersey: John Wiley & Sons, Ltd., 2006. Sample first chapter to be found here.Drobny really does take his readers inside global macro hedge funds, through 13 in-depth interviews with global macro hedge fund managers that provide rare insight into a variety of trading strategies as well as a behind-the-scenes perspective. The book also includes a chapter on the history of global macro hedge funds that gives a good sense of how the driving forces and consequent trades put on by global macro managers have changed over the years.
  • Lhabitant, Francoise-Serge. Handbook of Hedge Funds. West Sussex: John Wiley & Sons, Ltd., 2006.This is an excellent guide to the industry, with concise and informative descriptions on all of the major hedge fund strategies and primary methods to measure their risk and performance. Lhabitant also includes an overview of the legal environment of hedge funds and their organizational structure, while ending with a short guide to investing in them.

Global Macro White Papers & Articles

  • Ahl, Peter. “Global Macro Funds – what lies ahead.” AIMA Newsletter, April 2001.This paper provides a short description on the strategy and describes the three primary approaches used by global macro managers to find opportunities. However, since it was written in 2001, its predictions and suggestions are slightly outdated.
  • Coen, Madilean and Sherwin, Richard. “Global Macro Hedge Funds.” The Hedge Fund Journal, May 2008. This article discusses the historical performance of the global macro strategy, with emphasis on its relatively good performance in 2008, even given the stress in the financial markets. It also points out how there has been a wider dispersion of returns among managers who use a discretionary approach than among those who use a systematic approach.
  • Davis, Nigel. Funds of Hedge Funds Look to Global Macro for Gains. July 22nd, 2008, Reuters.In this Reuters article, Nigel Davis examines why global macro hedge funds are popular during times of crisis.
  • Global Derivatives. Overview of Hedge Fund Strategies, November 2003.Quick and dirty description of all major hedge fund strategies.
  • MacDonald, Alistair and Patrick, Margot. Macro Gangs Hang Tough. March 12th, 2007, Wall Street JournalThis WSJ article looks at what the possibilities were for global macro hedge funds in the beginning of 2007. In the process, it gives a good background on global macro funds. We are providing the link through RiskVentures, who originally drew our attention to the article.
  • SÀfvenblad, Patrik. February 2004, Global Macro Trading This power point presentation outlines the structure of the alternative asset space and the comparative position and performance of global macro hedge funds. It also details some popular trading strategies of these hedge funds while highlighting the risks and issues that confront them.

Blogs Related to Global Macro Hedge Funds

  • Boom Bust Blog Written by Reggie Middleton, who apparently trades from home and works primarily off his own research, this blog contains short, interesting and sometimes cynical posts that would interest global macro traders.
  • The Global Guru This blog provides a weekly overview of the major issues in the financial markets, in the context of global macro hedge funds.
  • Investment Capitalist Investment capitalist blogs on issues that are likely to interest global macro investors. The blog is well organized and the posts often contain sharp insights buried beneath a lot of words. It also has a list of reading materials that cover technical and fundamental analysis as well as investment philosophies.

Information Sources

  • Eurasia Group Eurasia Group is a political risk advisory and consulting firm. They generate political research specific to various regions as well as general macro trends. Access is for subscribers only.
  • RGE Monitor Founded by the prominent economist, Nouriel Roubini, the RGE Monitor contains a wealth of information and analysis on global economic, political and financial events. Staff economists write daily commentary on select global macro issues which are available without subscription. However, access to region and sector specific information is by subscription only.


  • Barclay’s Global Macro Index Barclay’s calculates the average performance of 130+ global macro funds.Credit Suisse Tremont Hedge Fund Index CS/Tremont tracks provides registered users with historical data on the performance of variety of hedge fund strategies.

Want some more meat on global macro hedge fund strategies? Here's a white paper on Global Macro Hedge Funds

Read more articles like this within my Hedge Fund Strategy Guide list of articles.

Last updated by Sharini Kulasinghe

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