Modern Macro: A New Approach to an Old Strategy

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.