# Understanding Global Macro Strategies: Types and Implementation Explained

> **Definition**
>
> A global macro strategy is an investment fund management technique that is based on political and economic forecasts and often involves a mix of long and short positions across asset classes.

## What Is a Global Macro Strategy?

A global macro strategy is a hedge fund or mutual fund strategy that bases its holdings primarily on based on macroeconomic and political forecasts. Holdings may include long and short positions in various equity, fixed income, currency, commodities, and futures markets. Factors that a global macro strategy takes into consideration are interest rates, politics, and trade policies. These strategies require active management and an understanding of the breadth of opportunities in global macro funds.

For example, if a manager believes the United States is headed into a recession, they may short-sell stocks and futures contracts on major U.S. indices or the U.S. dollar. They may also see a big opportunity for growth in Singapore, taking long positions in that country's assets.

### Key Takeaways

*   Global macro strategies rely on macroeconomic and political forecasts to guide investments in equity, fixed income, currencies, and commodities.
*   Fund managers use interest rates, politics, and international trade trends to build portfolios around large-scale economic predictions.
*   Main global macro trading strategies include currency-based, interest rate-based, and stock index-based approaches.
*   Discretionary, commodity trading advisor (CTA), and systematic funds are common types of global macro funds.

> **Important**
>
> Global macro funds are usually actively managed, resulting in higher investment thresholds and fees.

## Understanding the Mechanics of Global Macro Strategies

Global macro funds create portfolios based on predictions of large-scale events, using strategies to take advantage of [macroeconomic](https://www.investopedia.com/terms/m/macroeconomics.asp) and geopolitical trends. Global macro strategists make forecasts and analyze trends involving factors such as:

*   Interest rates
*   Politics
*   Domestic and foreign policies
*   International trade
*   Currency exchange rates
*   Other factors

Global macro funds are among the least restricted, allowing nearly any type of trade with various securities.

## Exploring Different Types of Global Macro Strategies

Global macro funds typically use currency-based, interest rate-based, and stock index-based strategies. Within the context of currency strategies, the funds typically seek opportunities based on the relative strength of one currency to another. Funds monitor and project economic and monetary policies around the world, and make highly leveraged currency trades using [futures](https://www.investopedia.com/terms/f/futures.asp), forwards, options, and spot transactions.

Interest rate strategies often invest in sovereign debt, making both directional and relative value trades. A fund manager generally concentrates on monetary policy, its economy, and the political situation. Some of the vehicles they may choose in this strategy include U.S. Treasury and European debt instruments. They may also invest in government debt from other developed and emerging countries.

Global macro strategies analyze a country's equity or commodity index using futures, options, and ETFs. Managers aim to build portfolios that outperform the index in low-interest-rate settings. They mainly focus on [liquid assets](https://www.investopedia.com/terms/l/liquidasset.asp) that can be easily traded when there is uncertainty. These assets only come with market risks, which are expected. This means there are no other risks—liquidity or credit risks—involved. Some global macro funds focus solely on strategies for emerging markets.  

## Various Categories of Global Macro Funds

There are a variety of generalized global macro fund types that exist, most of which aim to profit from systemic and market risk factors. Discretionary global macro funds build portfolios based on a comprehensive view of global markets. This type of fund is flexible since managers can invest long or short in any asset globally.  
  
[Commodity trading advisor](https://www.investopedia.com/terms/c/cta.asp) (CTA) global macro funds use various investment products. However, rather than creating portfolios based on top-level views, these funds use price-based and trend-following algorithms to help construct portfolios and execute the fund's trades.

Systematic global macro funds use fundamental analysis to build portfolios and execute trades using algorithms. This type of fund is essentially a hybrid of discretionary global macro and CTA funds.

## Insights Into Global Macro Hedge Funds

These funds are generally actively managed. As noted above, they try to profit from broad changes that result from both political and economic factors. They can be fairly diversified, offering exposure to different assets and instruments. Because they are actively managed, investors can expect higher investment thresholds and higher fees associated with these funds.

[Institutional Investor](https://www.institutionalinvestor.com/article/b1dq1fgrs5w1t6/Here-Are-the-Manager-Finalists-for-the-2019-Hedge-Fund-Awards) announced its Hedge Fund Industry Award nominees for 2019, which included a few global macro funds. New York-based [Element Capital Management](http://www.elementcapital.com), the report cited, jumped 17.3% since 2018. Under Jeffrey Talpins, the fund uses a multi-process investment approach by combining macro fundamental, systematic, and relative value analysis.

As of November 2018, Element Capital Management had $55.88 billion in assets under management.

[Bridgewater Assets](https://www.bridgewater.com) is another name cited by the publication, posting a jump of 14.6% in its Pure Alpha Strategy. The firm reported $124.7 billion in assets under management as of 2018.