Global Macro Strategy

An investment and trading strategy based on the interpretations and expectations of large macroeconomic events

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What is the Global Macro Strategy?

A global macro strategy is an investment and trading strategy that is based on the interpretation of large macroeconomic events on the national, regional, and global scale. For the successful implementation of a global macro strategy, fund managers analyze various macroeconomic and geopolitical factors. These include interest rates, currency exchange rates, levels of international trade, political events, and international relations.

Unlike many other investment strategies, a global market strategy focuses on the systematic risks of markets.

Global Macro Strategy

Global macro strategies are commonly deployed by hedge funds and mutual funds. The funds that utilize a global macro strategy are the least restricted funds. That is, they have the ability to invest in a wide range of assets, worldwide.

Types of Global Macro Strategies

Global macro strategies can be classified based on the macroeconomic factor that they primarily use. There are three main categories:

#1 Currency strategies

These are strategies that are based on the assessment of the relative strength of one currency against another. Currency strategies pay close attention to monetary policies and short-term interest rates in various countries.

The main instruments used in such a strategy are currencies and currency derivatives (e.g., currency futures). Currency strategies may provide lucrative returns because they can be traded with leverage. However, high leverage also makes the trades extremely risky.

#2 Interest rate strategies

This type of global macro strategy focuses on the interest rates of sovereign debts. In such a strategy, strong emphasis is placed on a country’s monetary policy, as well as its economic and political situation. The most common financial instruments utilized in the strategy are government debts (e.g., US Treasury Bills) and the derivatives based on such securities.

#3 Stock index strategies

These strategies place attention on the performance of the equity index of a specific country. In addition to the stock indices, fund managers may use commodities indices. Stock index strategies are commonly executed using various derivatives on the equity indices.

Types of Global Macro Funds

In addition to the differences in strategies, global macro funds are classified by the implementation style of the strategies. The three main types of global macro funds are:

#1 Discretionary

The portfolio construction is based on the fundamental analysis of fund managers. It is the most flexible type of global macro fund in which fund managers may use all types of assets.

#2 Commodity Trading Advisor (CTA)

The fund’s portfolio is constructed using price-based and trend-following algorithms.

#3 Systematic

The assets are chosen based on fundamental analysis, but portfolio allocation is determined by trading algorithms.

Related Readings

Thank you for reading CFI’s explanation of a global macro strategy. CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

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