Deep uncertainty and market volatility provide fertile ground for macro
hedge funds that can monetize not just the trends, but the volatility around
the trends.
Macro investing is enjoying a renaissance. In 2022, as most asset prices sank amid sharply rising interest rates, macro hedge funds generated their strongest returns in several years. This is not surprising: The macro style of investing – in which managers invest based on their outlook for the economy and geopolitical events – has historically performed well when markets, particularly equity markets, have experienced large moves. With this in mind, investors seeking diversification from equity portfolios (see Figure 1) have poured $7.3 billion in net inflows into macro funds1 over the last three years. We expect that gyrations across assets – ranging from the U.S. dollar to Treasuries to commodities – will continue to provide a fertile landscape for macro investing. Yet, we believe the increasingly uncertain and fragile market environment calls for a more dynamic, nimble approach to the strategy – one that seeks to monetize not just the trends, but the volatility around the trends, while defending against a widening range of outcomes. This more modern approach will, in our view, likely outperform its more traditional counterparts.
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