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Macro hedge funds primed to capitalise on market trends amid fragmented global recovery

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Global macro hedge funds remain well-placed to benefit from investment themes arising from fragmented recoveries and diverging macroeconomic policies in the coming months – despite recent slim returns and allocator outflows over the summer.

Macro strategies have advanced 7.82 per cent so far in 2021, according to data provider BarclayHedge, after managers posted a narrow gain of 0.19 per cent in July. In comparison, the broader Barclay Hedge Fund Index – which measures average industry performance across strategy classes – has risen almost 9 per cent year-to-date, BarclayHedge said this week.

Macro managers take long and short positions across a wide range of markets and indices, including equities, bonds, currencies, and commodities, with bets shaped by their outlook on broader macroeconomic trends and events.

Last year, the sub-strategy generated an annual return of more than 10 per cent.

Despite macro hedge funds suffering the largest volume of investor outflows towards the end of the first half – allocators withdrew some USD5.57 billion from the sector in June, according to eVestment data – the outlook for managers remains positive.

“Macro developments continue to drive global markets with managers focused on these factors facing a potentially rich opportunity set over the medium term,” K2 Advisors, the hedge fund investing unit of Franklin Templeton, said last month.

In its recent Q3 Hedge Fund Strategy Outlook, K2 pointed to disparate recoveries between regions and countries as global economies emerge from the Covid-19 pandemic, with discretionary macro managers and nimble strategies particularly well-placed to capitalise on currencies and yield curve trades.

At the same time, the differences in country recoveries in emerging markets, and potential shifts in developed market policy paths, may also herald EM opportunities for regional-specialist macro funds, K2 added.

Meanwhile, Man FRM, the investment advisory unit of Man Group, is also taking a positive stance on discretionary macro hedge funds in the coming months.

Macro managers’ experience in trading around monetary policy changes could prove pivotal if central banks shift to a more hawkish policy, Man FRM said, with the sector primed to trade the “key themes that are expected to drive markets over the next 12 to 24 months.”

“With the rollout of vaccinations in many developed markets, macro managers have added themes in their books with longer-term fundamental views, focusing more on the divergent growth landscape between developed and emerging markets,” Man FRM noted in its Q3 strategy outlook.

“Further, we believe that there will be trading opportunities in EM markets when their economies eventually enter a recovery path.”

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