By Ted Katramados, Director & Associate Portfolio Manager, TAG Relative Value Fund
Global macro is an investment strategy that seeks to profit from global trends that impact the overall direction of world markets. It is designed to find pricing inefficiencies caused by economic events, geopolitical developments, or monetary policy changes, as well as quantitative, computer model trading. Investors in this space often trade assets like equities, bonds, currencies, and commodities.
There are two main types of Macro strategy: Discretionary Macro and Systematic Macro.
They each make up an important part of an Absolute Return portfolio, particularly when equity markets are struggling, and the S&P is down. The below chart of annualized returns shows how the HFRI Global Macro index has performed against the S&P 500 both as a whole and broken down between Discretionary and Systematic Macro.
| Inception | 2024 | 3-Year | 5-Year | 7-Year | 10-Year | ITD | |
| HFRI Macro (Total) Index | Jan-90 | 5.95 | 4.79 | 5.49 | 4.21 | 3.13 | 8.93 |
| HFRI Macro: Discretionary Thematic Index | Jan-08 | 7.17 | 4.70 | 6.14 | 5.00 | 3.57 | 2.21 |
| HFRI Macro: Systematic Diversified Index | Jan-90 | 4.46 | 4.07 | 4.24 | 3.01 | 1.92 | 7.91 |
| S&P 500 | Jan-70 | 25.02 | 8.94 | 14.53 | 13.83 | 13.10 | 10.95 |
Data through 12/31/2024
Though, like everything else, macro funds have lagged the S&P, they have been strong when the S&P has not and are a particularly important allocation in times of market volatility and weakness.
The chart below shows the correlation of different styles of macro investing with the S&P 500 since January 2008. As can be seen, correlation is generally low, particularly when risk-off conditions are in place.
| HFRI Macro (Total) Index | HFRI Macro: Discretionary Thematic Index | HFRI Macro: Systematic Diversified Index | S&P 500 | |
| HFRI Macro (Total) Index | 1.00 | 0.90 | 0.21 | -0.02 |
| HFRI Macro: Discretionary Thematic Index | 0.90 | 1.00 | 0.53 | 0.20 |
| HFRI Macro: Systematic Diversified Index | 0.21 | 0.53 | 1.00 | 0.60 |
| S&P 500 | -0.02 | 0.20 | 0.60 | 1.00 |
Data from January 2008 through December 2024 (based on monthly return data)
Discretionary Macro Strategies
Discretionary macro investing involves fundamental analysis of global trends, including the global economy, geopolitical developments, and world events that can affect all markets and all securities, regardless of industry.
Discretionary Macro investors will trade equities, fixed income, foreign exchange, commodities, and sometimes credit. There are few restrictions on asset classes or geographic regions, allowing the investor to take positions anywhere they see an opportunity to capitalize on global trends. Decisions are driven by fundamental market analysis and macroeconomic data, including interest rate changes, GDP growth, inflation forecasts, and geopolitical events.
Geopolitics, including trade wars, political instability, international conflicts or changes in leadership can have a significant impact on markets, and traders factor them into their decision-making.
Some specific sub-strategies within discretionary macro include:
- Interest rates: The direction of rates in different economies drives huge market movements. Emerging markets investors might take a position based on the expectation that central banks in Central and Eastern Europe will cut rates before the Federal Reserve, or that rates in Japan will remain low while other economies tighten. These strategies can be very effective.
- Gold: A polarizing investment, gold can be a focal point for discretionary macro traders. While some view gold as a hedge against inflation or currency depreciation, others view it as a reaction to central bank policy. Gold does come with the problem of carrying costs, leading to a negative yield.
- Energy: Oil and natural gas, as well as other commodities, are also a key area. Traders will often adjust their exposure based on macroeconomic trends, geopolitical developments, or fluctuations in expected supply and demand.
- Indexes: Traders will look to identify the differences between the value of an index and where the futures contracts of that index are trading. This strategy has been effective for several years.
Macro discretionary investors may use a combination of traditional analysis and intuition to decide when and how to enter or exit positions, as well as which positions to enter in the first place.
Systematic Macro Strategies
On the other end of the spectrum is Systematic Macro Strategies, which rely on computer-driven models and algorithms to identify areas of inefficiency to exploit. Systematic strategies use advanced mathematical models, machine learning, and AI to process vast amounts of market data to generate and automatically run trades.
Systematic macro investors use historical market data, news feeds, economic indicators, and even real-time data to fuel their models. These models analyze large sets of data, often involving hundreds or even thousands of variables, to detect patterns or correlations that can be exploited for profit. The edge for systematic macro investors is the ability to process information and execute trades at a speed and scale that humans cannot match. These systems can make decisions in milliseconds, reacting to market changes faster than any human could. In addition, systematic trading removes emotion from trading decisions, which can be helpful in times of market stress.
These strategies can also scale across many different markets, from equities and bonds to currencies and commodities. Some advanced strategies trade in hundreds of markets simultaneously, executing thousands of trades per day. And because of their automated nature, systematic strategies can be programmed with risk management baked in.
But because systematic macro strategies are so “black box,” it’s hard to know exactly what the specific code behind the trading is.
Some examples include going long the U.S. Dollar and short the Yen, or long US equities and short European equities if a model favors one over the other. Those are very basic strategies. But advanced strategies and programs can run hundreds or thousands of trades per day based on complex programs. Others are built around momentum, identifying trends in asset prices and betting that price movements will continue.
In terms of manager selection, not knowing or being able to fully understand how a systematic strategy works is an impediment to using it to the same extent as macro discretionary strategies. It can be difficult to understand the systems, risk management programs, and costs of trade execution.
In comparing the two approaches, macro discretionary traders have more flexibility in deciding when and where to place trades based on their views. They can react to new information as it emerges, making their approach more agile but also more prone to human error or biases. Systematic strategies are entirely data-driven and can execute trades without human intervention, but they may miss opportunities that fall outside the model’s scope.
Either one offers investors the opportunity to profit from macroeconomic events and market inefficiencies. Ultimately, both styles are focused on navigating the complex global markets, but they do so in fundamentally different ways, each seeking to harness the power of macroeconomic trends for profit. In the end, a combination of the two may be an effective allocation strategy. Macro investing, at its core, offers a potentially uncorrelated return stream that benefits from volatility in global markets.