The Favorable Environment for Macro Strategies Could Last Years

Macro trading strategies utilized for decades by hedge funds have swung back into favor in the last year and look to be here to stay, given the change in central bank policies that are likely to create a favorable environment for such strategies in the years to come.

A macro trading strategy looks at the big movements happening at the global asset level and includes equities, bonds, currencies, and more. These types of strategies suffered in the environment of the 2010s when central bank stimulus paved the way for a fairly sustained bull run in equities and suppressed volatility.

The onset of the pandemic in 2020 sent a shockwave through global markets that both macro strategies and trend-following strategies have been flourishing in ever since.

Hedge Funds Positioning for Greater Capital Influx Into Macro Strategies

“There’s been a paradigm shift in interest in macro from the previous decade to now, due in large part to central bank activity,” Kenneth Tropin, chair of Graham Capital, told Financial Times. “Macro markets have been moving like crazy, last year was particularly good and the opportunity set is fantastic looking ahead.”

Graham Capital has about $17.5 billion in AUM and has hired both an economist and a macro fund manager in recent months, part of an overall trend for many hedge fund firms as they position for increased investors in the space looking ahead. ExodusPoint and Schonfeld are two firms that have also recently made big hires, and Trium Capital out of London launched its first macro fund at the end of last year in anticipation of “a rich era for global macro” according to Donald Pepper, the firm’s co-CEO.

Macro trading strategy funds on average gained 9% last year compared to the over 17% drop in the S&P in an environment of central bank tightening that sent interest rates and bond yields soaring while equities struggled under the weight of inflation.

According to Paul Britto, CEO of Capstone, the shifting of central bank policy means that markets are no longer constrained, allowing for the kind of environment that trend-following strategies thrive in now and will likely for years to come.

“Investors are particularly focused on the paradigm shift and what’s happening in rates and inflation,” Marlin Naidoo, global head of capital introduction at BNP Paribas, told FT. “Macro is very well positioned to take advantage of that.”

DBMF Offers Hedge Fund Strategy in an ETF

The iMGP DBi Managed Futures Strategy ETF (DBMF) capitalized on the market dislocation and volatility of the last year, capturing the changing trends within global markets via managed futures, a popular hedge fund strategy: DBMF was up 23.5% in 2022.

DBMF allows for the diversification of portfolios across asset classes uncorrelated to traditional equities or bonds. It is an actively managed fund that uses long and short positions within the futures market on several asset classes: domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).

The fund’s position within domestically managed futures and forward contracts is determined by the Dynamic Beta Engine, which analyzes the trailing 60-day performance of CTA hedge funds and then determines a portfolio of liquid contracts that would mimic the hedge funds’ averaged performance (not the positions).

DBMF takes long positions in derivatives with exposures to asset classes, sectors, or markets that are anticipated to grow in value and takes short positions in derivatives with exposures expected to fall in value.

DBMF has management fees of 0.85%.

For more news, information, and analysis, visit the Managed Futures Channel.