The Rise of Macro Strategies?
Investors turn to Global macro strategies when they expect significant volatility and experience S&P 500 peak-to-trough drawdowns. Drawdows and volatility may occur from economic and political uncertainty. Savvy investors may want to hedge against potential loss by employing Global macro strategies in their portfolios.
The Man Institute points out that macro strategies usually do well in uncertain times and prove to deliver robust returns when implemented properly. We’ve seen macro strategies play well in the dot com crash and in the more recent housing and credit crisis. Sophisticated macro strategies may provide outsized returns and make a portfolio anti-fragile, minimizing equity market risks.
Macro has proven to do well even in recent times with significant drawdowns in December of 2018 and in the middle half of this year.
Remember that Global macro strategies are not the ultimate all-weather strategy that you may seek. It is undoubtedly not a silver bullet and furthermore it is not one approach you should solely rely upon to ward off risks.
We are in an era that brings with it a slew of macroeconomic opportunities. Europe is facing issues with Portugal, Italy, Greece and Spain (PIGS). Brexit woes still plague investors and deepening concerns of general tensions in Europe are causes for concern. Draghi, Lagarde, and others continue to take on accommodative policies and will likely continue with the current policies. We’re seeing more government intervention in Europeran markets and differences of opinion regarding global growth expectations.
Drawbacks to Global macro strategies include betting on the wrong events. For instance, prominent investor Ray Dalio’s hedge fund continues to believe in higher chances of a recession and places capital accordingly. Indeed markets have moved in a different direction. His hedge fund is down 6% over the year according to Business Insider.
Macro hedge fund managers may time the market too early, or too late. Currently, markets continue to gyrate upward based on Presidential tweets of strong trade talks, lower rates, and strong job growth.
Indeed, there are many different risks present within this strategy and managers must be certain of how they view the market prior to delving into this approach.
What Do Global Macro Strategies Consist Of?
Global Macro strategies may consist of significant events that will take place on country level of global basis. Managers will make bets on how the market will respond and take positions in commodities or stocks that will benefit from the swings. Managers may short some regions while doubling down on other regions. They may short stocks while investing heavily in gold or bitcoin.
If they feel a nation will do well, for instance, Japan, they can purchase diversified tech stocks with funds including stocks such as Softbank in Japan while shorting banks in Argentina.
Analysts will study potential chances of a recession, rising or decreasing interest rates, events such as trade wars, global trade, and currency factors in this macro strategy approach.